In World Economy News 18/08/2016
Australia’s triple-A credit rating was affirmed by Moody’s Investor Service on Wednesday, citing the country’s economic resilience, very strong institutional framework and stronger fiscal metrics than its peers despite an increase in government debt.
The stable outlook on Australia’s credit rating was maintained.
The country’s reliance on external financing, elevated household debt and rising residential property prices pose risks, Moody’s cautioned.
“The stable outlook on the rating reflects Moody’s expectations that policy vigilance and response to these risks will be effective, and Australia’s sovereign credit profile will remain resilient to these risks,” the agency added.
Moody’s expect real GDP growth to remain robust, at around 2.5 percent from 2017 onwards, after 2.8 percent this year. The rating agency also noted that the economy was quickly and effectively adjusting to lower commodity prices that have dampened a significant source of revenues and incentives to invest.
“Longer term, Australia’s potential growth is higher than most Aaa-rated sovereigns'”, Moody’s said in a statement.
“In particular population growth is stronger, aging is slower and financial provisions for an aging population are more advanced than in many advanced economies.”
The rating agency also pointed out that the Reserve Bank of Australia has retained more space for conventional monetary policy, the effectiveness of which is better established than that of unconventional measures.
“In case of a downturn in the housing market or a tightening in external financing conditions, scope for monetary and fiscal policy stimulus would combine with the shown resilience of the economy to mitigate the negative impact on overall economic activity,” the agency said.
Australian Treasurer Scott Morrison welcomed the latest move by Moody’s.
“In these difficult economic times, maintaining our triple-A rating is a welcome boost and a timely reminder that we need to keep our focus on the policies that keep our economy strong,” he said in a statement.
“Support in the Parliament to implement the Turnbull Government’s economic plan for jobs and growth, to avoid higher debt and reduce the deficit is necessary to support maintaining our triple-A rating.”
Last month, Standard & Poor’s lowered the outlook on Australia’s AAA rating to negative from stable, signaling it could downgrade the rating going forward. The agency cited possible hurdles in fiscal consolidation in future and urged the new government to tackle the budget problem fast to avoid a rating downgrade.
In July, Fitch Ratings also affirmed Australia’s triple-A credit rating with a stable outlook.
Source: RTT News
