S&P reaffirms Australia's stability with another AAA rating
The agency issued the annual rating despite a recent fall in the terms of trade and a steep decline in the dollar. The dollar has brushed US90¢ in recent weeks after spending the past couple of years near parity with the US dollar.
The stable rating has been maintained after some deterioration in public finances since the financial crisis. Australia remains one of eight countries with a AAA rating from all three big credit-rating agencies.
The main reasons for S&P's vote of confidence include Australia's public policy stability, economic resilience and flexible fiscal and monetary policy.
S&P credit analyst Craig Michaels said Australia had a "strong ability" to absorb large economic and financial shocks, "as was demonstrated during the global recession in 2009. [However], moderating these strengths are Australia's high external imbalances, dependence on commodity exports, and high household debt."
Treasurer Chris Bowen, who has been in the role for three weeks, was quick to trumpet the news.
"This decision is further testament to the resilience of the Australian economy and the prudent economic management of the Labor government," he said.
S&P notes that Australia's public finances have worsened in the past few years, but the deterioration has been "more contained" than for many AAA-rated peers.
It also said it expected the government sector's budget balance to post "relatively small and declining deficits as a share of GDP".
It expected the federal budget to be "broadly in balance" by 2016.
Despite the stable rating, S&P said risks remained for Australia's growth prospects and credit quality, and these stemmed largely from its "growing dependence on trade with China".
"However, while robust demand for its commodities continues - from emerging Asia, and particularly China - we believe Australia's economic prospects over the forecast period will remain favourable."
Frequently Asked Questions about this Article…
Standard & Poor's reaffirmed Australia’s AAA credit rating with a stable outlook, maintaining the top rating despite a recent fall in the terms of trade and a steep decline in the Australian dollar. The article also notes Australia is one of eight countries with AAA ratings from all three major agencies.
S&P cited Australia’s public policy stability, economic resilience and flexible fiscal and monetary policy as key reasons for keeping the AAA rating. The agency said Australia has a strong ability to absorb large economic and financial shocks, pointing to its performance during the 2009 global recession.
S&P warned of several risks including high external imbalances, heavy dependence on commodity exports, high household debt and a growing dependence on trade with China. These factors were identified as moderating Australia’s strengths and posing risks to future growth and credit quality.
S&P said Australia’s public finances have deteriorated in recent years but that the deterioration has been more contained than many AAA peers. It expects the government sector to post relatively small and declining deficits as a share of GDP, and anticipated the federal budget would be broadly in balance by 2016.
The article noted S&P issued the rating despite a recent fall in the terms of trade and a steep decline in the Australian dollar. It reported the dollar had brushed about US90¢ after spending the previous couple of years near parity with the US dollar.
Craig Michaels, an S&P credit analyst, said Australia has a 'strong ability' to absorb large economic and financial shocks, as demonstrated during the global recession in 2009. He also cautioned that this resilience is moderated by external imbalances, reliance on commodity exports and high household debt.
Treasurer Chris Bowen, who had been in the role for three weeks at the time, welcomed the decision and described it as further testament to the resilience of the Australian economy and the prudent economic management of the Labor government.
While the article doesn’t give investment advice, it highlights that S&P’s stable AAA rating signals confidence in Australia’s policy stability and economic resilience — factors that can be reassuring to investors. At the same time, S&P’s flagged risks (commodity dependence, household debt and exposure to China) are reminders for investors to consider economic vulnerabilities when making decisions.
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