S&P reaffirms Australia’s AAA credit rating

Ratings agency Standard & Poor’s (S&P) has reaffirmed Australia’s AAA credit rating, citing fiscal stability and an expectation for a return to budget surplus.

“The stable outlook reflects our expectations that the general government fiscal balance will return to surplus by the early 2020s,” S&P said.

“We expect steady government revenue growth supported by the strong labour market and relatively robust commodity prices to be accompanied by expenditure restraint.”

The ratings agency also maintained a positive property market outlook, claiming that it expects home prices to “continue their orderly unwind”, adding that the slowdown “won’t weigh heavily on consumer spending and the financial system’s asset quality”.

S&P continued: “We expect large infrastructure spending at the state government level to likely keep the general government balance negative till fiscal 2021.”

However, S&P noted that a steeper decline in property prices could prompt a revision of its credit outlook for Australia.

“While our base case is for a soft landing, our ratings could come under pressure if house prices fall sharply and increase risks to fiscal accounts, real economic growth and financial stability,” S&P noted.

The ratings agency also warned that Australia’s fiscal position must remain stable to ensure that it can withstand a sharper downturn in the domestic market.

“Australia’s weak external position means that its other sovereign credit factors, including the fiscal factors, need to be strong to keep the sovereign rating at the highest level on our scale,” the ratings agency added.

“A stronger fiscal position would also be a strong buffer to absorb the consequences of an abrupt weakening of the housing market and the vulnerabilities that event could bring to financial stability.”

Reflecting on S&P’s decision, federal treasurer Josh Frydenberg said: “[The] report by S&P removed the negative outlook on our rating and confirmed Australia as one of only 10 countries which have a AAA credit rating with all three major ratings agencies.

“The latest National Accounts showed that the economy grew by 3.4 per cent through the year to the June quarter of 2018, which is the fastest rate of growth since the height of the mining investment boom in 2012 and significantly faster than the average rate of growth in the OECD.

“Australia’s strong economy is delivering strong jobs growth. Over the 2017–18 financial year, the Australian economy saw almost 350,000 jobs created, the strongest of any financial year since 2004–05, and there are now more than one million additional people in work than when we came into office five years ago.”

[Related: Analyst warns of housing market ‘wild cards’]