Swan basks in triple-A 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 just one of eight countries worldwide with the top triple-A rating from three separate global ratings agencies - S&P, 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," JPMorgan 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.
Frequently Asked Questions about this Article…
A triple-A credit rating—confirmed by Fitch alongside S&P and Moody's—signals that Australia is seen as one of the safest borrowers worldwide. For investors, it generally means lower sovereign risk, which can support confidence in government bonds and the wider financial system, as noted in the article.
Fitch warned that the eventual end of the mining boom could put pressure on the non-mining sector's competitiveness and therefore on potential economic growth. The concern is that lower mining demand could reduce overall economic momentum unless other sectors pick up the slack.
The article reports that Australia’s economy grew by 0.6% in the most recent quarter and 3.1% over the year—its strongest annual growth since 2007, when growth was 3.8%.
Fitch noted Australia has built capacity to absorb shocks thanks to factors like low public debt, a floating exchange rate, and liberal trade and labour markets, which together help the country handle economic volatility.
According to JPMorgan analyst Sally Auld cited in the article, offshore investors hold 72.7% of Australian government bond outstandings, down from 74.4% in the third quarter of 2012, indicating some waning enthusiasm from foreign buyers.
Fitch analysts described Australian banks as among the strongest in the world on a stand-alone basis, while noting they remain heavily reliant on wholesale funding markets.
The article states the Reserve Bank was expected to leave the cash rate unchanged at 3%. For investors, an unchanged cash rate affects borrowing costs, bond yields and the attractiveness of yield-sensitive investments; monthly data on building approvals and retail sales will help show whether past rate cuts are stimulating the economy.
Treasurer Wayne Swan used the triple-A affirmation to highlight Labor's economic credentials, noting no Liberal government had achieved the trifecta from all three global ratings agencies. The rating is therefore being cited as validation of the government's economic choices in the article.
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