Ratings agency Standard & Poor’s has reaffirmed Australia’s triple-A credit rating just months away from the federal election.
Standard & Poor’s issued the rating despite a recent fall in the country’s terms of trade and a steep decline in the dollar in recent months.
The dollar brushed 90 US cents in recent weeks after spending the last couple of years hugging parity with the US dollar.
The stable rating has been maintained even after some deterioration in the country’s public finances since the financial crisis.
The main reasons for Standard & Poor’s vote of confidence include Australia’s public policy stability, economic resilience, and flexible fiscal and monetary policy.
A credit analyst from Standard & Poor’s, 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.”
The agency notes Australia’s public finances have “worsened” in the last few years, but the deterioration has been “more contained” than for many triple-A rated peers.
It also says it expects the general government sector’s budget balance to post “relatively small and declining deficits as a share of GDP”.
The federal budget is expected to be “broadly in balance” by 2016.
However, it says risks remain for Australia’s growth prospects and credit quality.
“These stem largely from its growing dependence on trade with China,” the agency said.
“If demand for Australia’s resources were to weaken sharply, this could lead to a range of disorderly dislocations in its economy, including in its labour and property markets. 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.”
The slowdown in mining investment growth has seen economic conditions soften in the last 12 months.
The agency expects economic growth for the year ended June 30 to slow to 2.6 per cent, down from 3.4 per cent in fiscal year 2012.
But things are expected to pick up in the next year as economic activity shifts away from the mining sector towards non-mining parts of the economy.
“We forecast growth will improve to 3 per cent in fiscal 2014, as other sectors gradually strengthen, supported by low interest rates,” the agency said.
“We also expect commodity exports to increase as mining projects are progressively completed and commence production.”
It says Australia’s triple-A rating is likely to remain stable on the assumption that the country’s “historically conservative budgetary policies will remain in place, such that fiscal deficits continue to narrow and that the general government debt burden will remain low.”
Australia is one of just a handful of countries to be rated AAA by all three major credit-rating firms.
The original release of this article first appeared on the website of Hangzhou Night Net.