From Reuters via Forexlive:
- Hockey said he was confident the economy would extend a run of annual growth that dates back to 1991
- Was dismissive of talk that the sovereign debt rating was in danger
- “There is no suggestion of a risk. None. None. We’re not even on negative credit watch”
- “I don’t see off-the-cuff commentary from one investment bank as any reliable indicator of where our credit rating is heading.”
You should. Here’s what they said:
The rising risk of a ratings downgrade
In this report we discuss the risk of a possible downgrade to Australia’s Sovereign rating. Credit rating agency Standard & Poor’s (S&P) current rating is AAA; Stable. We see potential for Australia to be placed on a “negative outlook” over the coming months. This raises the possibility that Australia could see its first outright ratings downgrade since 1989.Although Australia’s overall public debt burden remains favourable relative to its 11 other AAA-rated peers and contingent liabilities look manageable, significant external vulnerabilities persist and a mix of sharply lower commodity prices, weak growth and political impasse have resulted in an unprecedented degree of fiscal slippage over recent years. Against the backdrop of cumulative negative parameter variations totaling A$283bn in the past 2½ years alone, and our expectation that a further ~A$55bn deterioration may be revealed in the 12 May Budget, we show how S&P’s recently updated ratings methodology suggests a downgrade to Australia’s AAA (stable) status – at a minimum – to a “negative outlook”.
Much of this deterioration is because of the iron ore crash. They see the price average declining to $52 this year, $44 next year and $40 after that. If you accept the forecasts then a downgrade is inevitable unless our Joe budgets for them.
The notion is spreading fast, The Australian:
“While Australia’s still low level of public debt has suggested that the risk is low, the Budget in a week’s time will be the seventh in a row that has projected or implied a return to surplus within a reasonable time frame,” says AMP Capital’s head of investment strategy and chief economist Shane Oliver.
“One could be forgiven for starting to think that such projections/commitments are hollow. So the short answer is that if Canberra does not provide more confidence of a return to surplus within a reasonable time frame then the AAA rating will be at risk.”
