Australia is the fastest growing AAA-rated commodity exporter this year despite escalating government debt, according to credit ratings agency Moody's.

Moody's said Australia is likely to maintain faster GDP expansion than Canada and Norway, and similar to New Zealand but, even with government debt rising to around 41 per cent of GDP in 2017 - the burden remains lower than in Canada and other AAA-rated countries.

Moody's said a weaker Australian dollar and historically low interest rates have resulted in increasing market share for tourism and education services as Australia transitions away from the mining boom.

"The breadth of the recent decline in global commodity prices - from energy, to metals, to soft commodities - means that despite differences in the mix of products they export, Australia, Canada and Norway have all experienced sharp deteriorations in their terms of trade," Moody's noted in the report.

Mining investment in Australia has halved from its peak in 2013, when during that time Australia enjoyed GDP growth of 3-4 per cent.

Moody's noted that a weaker Australian dollar at 76 US cents has made the country's non-commodity exports more affordable, with the country taking an increased share of global demand and boosted export volumes.

The credit ratings agency has forecast GDP growth of between 2.5 per cent to 3 per cent in the coming years, which is stronger than its expectations for Canada and Norway, but in line with projections for New Zealand.

Government debt rising faster

Australia shifted from years of budget surpluses to deficits in 2009, but its revenue and spending constraints limit scope for fiscal tightening, Moody's noted.

Australia has posted a 22.2-percentage-point rise in the country's government debt-to-GDP ratio since 2009, which is "significantly faster than its peers".

"Lower commodity prices are weighing on corporate profits which, alongside subdued wage growth, will make it difficult for the Government to bolster its revenues significantly."

Commitments to health, education and social services account for 60 per cent of government spending, and the credit ratings agency said the Government had been "unable to reduce expenditures to significantly below 36.5 per cent of GDP since 2009".

Moody's expects total government debt to rise to 41 per cent of GDP in 2017.

House prices and household debt a challenge

Sharply rising house prices and a build-up in household debt remain challenges for Australia, Canada, Norway and New Zealand.

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"Negative income or interest rate shocks can raise the share of debt service payments in household expenditure, dampening consumption and weighing on economic growth," the report said.

Moody's flagged an area of concern is the high exposure of Australian banks to residential mortgages, which account for more than 60 per cent of bank lending, higher than in Western European countries, and North America, but in line with New Zealand.

"Compared with many other central banks in advanced economies, Australia and New Zealand have more space for conventional monetary policy, the effectiveness of which is better established than that of unconventional measures," Moody's said.

The credit ratings agency also flagged enduring political volatility would mean Australia continues to face some policy uncertainty, which in turn could mean challenges for the government to pass fiscal tightening measures.

However, Moody's noted there is a broad political consensus to return the budget to surplus and to maintain fiscal discipline.