Australia will be the fastest growing Aaa-rated commodity exporting economy in 2016, according to analysis by Moody’s Investors Service.
Behind this analysis is the increase in export volumes and a services sector benefiting from a weaker Australian dollar.
The weaker dollar and lower interest rates have allowed Australia to take an increasing market share of rising global demand for tourism and education services.
Moody’s expects Australia’s GDP to expand faster than fellow commodity exporters, and Aaa-rated economies, Canada and Norway and a similar rate to New Zealand over the next few years.
In August Moody’s affirmed Australia’s Aaa sovereign credit rating. However, Standard and Poor’s in July placed Australia’s AAA rating on credit watch negative from its previously stable outlook.
Commodity prices have risen in recent months but they have not recovered from the sharp falls of 2013 and 2014.
Moody’s assumes that prices will remain well below their previous peaks over the next few years.
Australia is exporting more which helps to make up at least some of the price falls, as this chart shows:
The ratings agency expects Australia’s budget deficits to remain wider for longer than the government forecasts and to be higher than in New Zealand and Norway, but not Canada.
Australian government debt is forecast to rise to 41% of GDP in 2017.
Moody’s says Australia, Canada, New Zealand and Norway have all experienced rapid increases in house prices and household debt, exposing their economies and financial systems to negative shocks.
However, the financial strength of Australia’s banks lowers the potential cost of government support to the banking system in the event of stress.
“Australia’s significant natural resource base and developed service sectors will remain in strong demand as incomes rise in China and other low-to-middle income countries,” Moody’s says.
“As such, we forecast continued real GDP growth of around 2.5% to 3% in coming years, lower than the 3% to 4% rates that Australia enjoyed during the commodity price and mining investment boom, but stronger than our expectations for Canada and Norway, and on a par with our projections for New Zealand.”