International credit rating agency Standard & Poor’s (S&P) has reaffirmed Australia’s AAA credit rating, saying there is a strong political will to bring the budget back to surplus whoever eventually wins power.
As three independent MPs continue to deliberate who they’ll back to lead the country between Labor Prime Minister Julia Gillard and Opposition Leader Tony Abbott, S&P said today it expects the budget to return to surplus in two to three years time.
Both Labor and the coalition have promised a surplus in 2012/13.
‘‘We believe that a strong political commitment to fiscal consolidation ... will continue regardless of which major party leads the government that emerges from the August general election,’’ the rating agency said.
‘‘In our opinion, this commitment will be supported by strong bipartisan political and community support for conservative public finances and stable political consensus on fiscal, monetary, and exchange rate policies.’’
It said the rating is also supported by low government debt, strong institutions and transparency in economic decision-making.
‘‘We also note that there is considerable scope for the government and central bank to provide further stimulus, if required,’’ it said.
House prices a risk
The outlook for Australia’s rating is stable. However, the risks to this outlook stem from potentially sharply lower resources export prices and house prices, although this appears contained at present.
While Australia’s government sector finances are not strained, private sector balance sheets, particularly in the banking system, also carry a high level of external debt that is a weakness compared with its peers.
Still, while Australia’s banking system has been affected by the financial turmoil of the past two years, unlike some peers it has not required government recapitalisation and has remained profitable and adequately capitalised. It has also maintained good asset quality by international standards.
‘‘The Australian economy outperformed every major OECD in fiscal 2009, partly thanks to the cumulative effects of fiscal stimulus, the strength of the mining sector, 30 years of microeconomic reforms, low wages growth, and a sound and rising savings rate,’’ it said. ‘‘With still-sluggish household consumption, the economy’s continued recovery depends mainly on the strength of global recovery and support from regional trading partners, particularly China.’’
As a result, S&P expects the economy to grow by 3.3 per cent in 2010 and 3.5 per cent in 2011. The agency also affirmed Australia’s A1-plus short-term rating.
AAP
