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Australia's economy displaying resilience to commodity slump

Staff Writer | October 13, 2016
Australia's economy is continuing to display resilience to commodity price declines, however external financing risks do linger, Moody's Investor Services said.
Down Under   The weaker Australian dollar and lower interest rates
Australia's growth should continue to outpace its commodity exporting triple-A (stable) rated peers New Zealand, Canada and Norway over the coming years as rising mineral exports offset weak prices, while the services sector ramps up from the drop in Aussie dollar.

"The weaker Australian dollar and lower interest rates have allowed it to take an increasing market share of rising global demand for tourism and education services," Moodys said in a report released on Wednesday.

However Australia's budget deficit will be wider for longer than the Australian government projects causing government debt to rise to around 41 percent of GDP in 2017.

Sovereign ratings agencies have taken alarm at the deficit and lack of action to arrest growing debt, causing ratings house Standard & Poor's to place Australia on CreditWatch negative.

Moody's said "constraints to fiscal consolidation are likely to persist", while rapid increase in house prices and the reliance on foreign investment is exposing the economy and financial system to any negative shocks offshore.

"Still, the robustness of Australian institutions shores up investor confidence and mitigates the risk of any abrupt tightening in financing conditions," Moody's said.

"Australia's long track record of robust growth illustrates its resilience in the face of such negative shocks."