Australia's long-term foreign and local currency rating has been confirmed to be AAA by DBRS Morningstar, with the economic trend said to be "stable".
According to the global credit ratings business the country's AAA ratings are underpinned by "considerable fundamental strengths".
These include Australia's diversified and "highly productive" economy, sound macroeconomic policy frameworks, and highly effective governing institutions.
"The Stable trend reflects Australia's credit fundamentals remain very strong despite the economic and health fallout from the pandemic," DBRS Morningstar said.
"The Australian economy has weathered the COVID-19 shock better than most other advanced economies.
"This is at least in part due to strong health and economic policy responses."
The body said national output rebounded strongly in the third quarter, even as Victorians languished under tough lockdown measures.
Further, economic momentum has been sustained through the end of the year, supported by easing of restrictions in VIC, an improving labour market, and greater consumer confidence.
As such, DBRS Morningstar believes Australia's economic performance could outperform expectations.
"The OECD expects GDP to contract by 3.8% in 2020 and then expand by 3.2 per cent in 2021 and 3.1 per cent in 2022," DBRS Morningstar said.
"We think the economy could outperform this forecast, particularly given positive developments on the vaccine front and the high level of pent-up stimulus in the system."
Despite the AAA rating, the credit ratings agency says a number of risks are still of consideration that could impact the Australian economy in 2021.
"In the near term, economic prospects will depend in large part on the evolution of the virus: additional outbreaks or delays in vaccine distribution could impede the recovery," DBRS Morningstar said.
"Escalating trade tensions with China could also have a negative impact on growth prospects.
"Over the medium term, there is the potential for economic scarring. The longer it takes to recover from the COVID-19 shock, the greater the risk of firm insolvencies, high unemployment, and low business investment, all of which could weaken the medium-term growth outlook."
Business News Australia
Get our daily business news
Sign up to our free email news updates.