Labor hitches wagon to rating trifecta
Fitch has affirmed Australia's triple-A rating with a stable outlook, although it warned the looming peak of the mining boom posed a threat to economic stability.
The approval reinforces Australia as one of just eight countries with the top rating from three separate global ratings agencies - Standard & Poor's, Fitch Ratings and Moody's.
"No Liberal government has ever achieved this coveted trifecta from all three global ratings agencies," Mr Swan said.
"Labor has got the big economic calls right to avoid recession during the global financial crisis."
Fitch analysts said Australia remained one of the strongest performing economies in the triple-A group but that its biggest challenge came from the mining boom.
"The eventual end of the mining boom will place greater pressure on the non-mining sector's ability to raise its competitiveness and in turn support potential growth," Fitch analysts said.
"It is still too early to judge how the economy will perform once this stage is reached, however."
Even so, Fitch noted Australia had built up the capacity to absorb economic shocks due to a combination of low public debt, a floating exchange rate and liberal trade and labour markets.
Australia's economy grew 0.6 per cent last quarter, a slight improvement from the September quarter, taking growth for the year to 3.1 per cent. The annual growth was the highest since 2007, when the economy grew by 3.8 per cent.
Even with the strong investment ratings, there are signs global demand for Australian government bonds has begun to cool from recent record levels.
"Offshore investors in Australian government bonds now hold 72.7 per cent of outstandings, down from 74.4 per cent in the third quarter of 2012," JP Morgan analyst Sally Auld said.
"Indeed, the waning enthusiasm for Australian government bonds by foreign investors is taking place in an environment where domestic fiscal fundamentals are deteriorating."
Fitch analysts said Australia's banks were among the strongest in the world on a stand-alone basis, despite their heavy reliance on wholesale funding markets.
The Reserve Bank is expected to leave the cash rate unchanged at 3 per cent when it meets on Tuesday.
Analysts say monthly data on building approvals and retail sales, due next week, will provide further indications of whether last year's monetary easing is gaining traction in the economy.
Frequently Asked Questions about this Article…
Fitch reaffirming Australia's triple-A rating with a stable outlook signals that a major ratings agency views the country as creditworthy and resilient. For everyday investors, it supports confidence in Australia’s government debt and overall economic stability, while also noting risks—Fitch warned the peak of the mining boom could threaten longer-term economic stability.
The 'rating trifecta' means having a top triple-A credit rating from all three global agencies—Standard & Poor's, Fitch and Moody's. Treasurer Wayne Swan highlighted it as a rare endorsement of Australia’s economic management, saying it reinforced Labor’s economic credentials and their handling of the global financial crisis.
Fitch warned that the eventual end of the mining boom could put pressure on the non-mining sector’s ability to raise competitiveness and support future growth. For investors, this means sectors tied to domestic demand and non-mining industries may face headwinds as the economy adjusts, so it’s worth watching sector performance and economic indicators over time.
According to the article, Australia’s economy grew by 0.6% in the most recent quarter and 3.1% over the year—an annual growth rate the report said was the highest since 2007 (when growth was 3.8%). These figures suggest the economy was still expanding, despite noted structural risks.
The article reports offshore investors now hold 72.7% of Australian government bonds, down from 74.4% in the third quarter of 2012, indicating waning foreign demand. JP Morgan analyst Sally Auld noted this cooling comes as domestic fiscal fundamentals are deteriorating, which could influence yields and market conditions for government bonds over time.
Fitch described Australia’s banks as among the strongest in the world on a stand-alone basis. However, it flagged their heavy reliance on wholesale funding markets as a risk, meaning banks can be vulnerable if wholesale funding conditions tighten.
The article said the Reserve Bank was expected to leave the cash rate unchanged at 3% when it met on Tuesday. That indicated a pause in official interest rate moves at the time, with markets watching incoming data for signs of whether past monetary easing is working.
The article highlights monthly data on building approvals and retail sales due next week as key indicators to watch. Analysts said those figures will provide clues about whether last year’s monetary easing is gaining traction in the economy, which can affect sectors, interest-rate expectations and investment sentiment.
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