AAA rating to keep mortgage rates low



S&P predicts that the federal budget deficit will shrink faster than the government predicts because the rating agency expects the price of iron ore to be higher than the government’s conservative estimate of $ 55 per tonne.

Improvement in fiscal outlook coincided with job postings rose 7.9% in May to a 12.5-year high.which, according to ANZ economist Catherine Burch, signals a “sharp decline” in unemployment in the coming months.

“We now expect the unemployment rate to be 4.8 percent by the end of this year and 4.4 percent by the end of 2022,” said Ms Burch.

Australia is currently one of nine countries with AAA credit ratings from all three major credit rating agencies.

The fight against the pandemic is commendable

S&Sovereign credit analyst P Anthony Walker said the government’s swift and decisive budget and health measures to contain the pandemic and limit long-term economic scarring have seen the economy recover faster and stronger than previously expected.

“The government’s response and strong economic recovery have mitigated the risks of a deterioration in our economic and financial outlook for Australia,” Mr. Walker said on Monday.

“As a result, we revise our outlook to stable and reiterate our long-term and short-term ratings in local and foreign currency at ‘AAA / A-1 +’.

“Australia is coping well with severe economic shocks, which alleviates our concerns about high levels of external and household debt.”

The change comes just a month after Commonwealth Bank of Australia’s fixed income specialists warned Australia could lose coveted AAA credit rating already in September, in connection with persistent budget deficit Over the next decade, public debt will find itself on a trajectory incompatible with top-tier ratings.

A boom in iron ore prices and a drop in unemployment helped the government secure a budget surplus of $ 1.4 billion in April, for the second month in a row financial profit was in positive territory.

However, a sustained budget deficit is projected over the next few years.

Iron ore price difference

In the short term S&The budget forecast P is slightly better than the government forecasts because S&P assumes the price of iron ore in 2021-22 will be US $ 130 per tonne, compared with the government’s conservative estimate of a reduction in the iron ore price to US $ 55 per tonne.

S&P estimates that the government’s annual budget deficit will shrink to about $ 60 billion, or 3 percent of GDP, over the next two to three years, up from a record deficit of $ 161 billion projected by the government for the current fiscal year 2020-2021.

The government projects a deficit of $ 106.6 billion in 2921-22, $ 99.3 billion in 2022-23, $ 79.5 billion in 2023-24 and $ 57 billion in 2024-25.

“We expect the budget to be supported by robust revenue growth, fueled by high commodity prices and cost constraints,” said Mr Walker.

However, S&P noted that he could downgrade Australia’s AAA rating if the deficit does not narrow over the next two to three years.

“This could happen if the economic recovery slows down, there are prolonged lockdowns, the government imposes significant additional fiscal stimulus due to large unforeseen flares, or commodity prices fall much faster and harder than we expect.”

Moody’s Investors Service and Fitch Ratings closely followed the financial situation of Australia, but did not put it in a negative observation mode, as S&P did, which has historically been tougher on Australia.

Victoria and NSW rating downgraded

Treasurer Josh Friedenberg said Australia has outpaced all major developed economies after production exceeded pre-COVID levels in the March quarter.

“S&P also recognizes the Coalition’s efforts to balance the budget for the first time in 11 years “amid tight financial discipline” that provided us with the financial firepower to support Australians during COVID-19, “said Fridenberg.

“With the unemployment rate falling for six months in a row and more people working than before the pandemic, our economic plan is working.

“The next phase of our budget plan will ensure Australia’s recovery from COVID-19.”

The Morrison government has pledged $ 291 billion in support through additional spending and tax cuts in response to the COVID-19 economic downturn.

S&P predicts net public debt will rise to about 37 percent of GDP, much lower than most major advanced economies.

“Service costs will remain manageable due to low interest rates,” S.&P said in the report.

The yield on 10-year federal government bonds on Monday was about 1.6%.

Mr Friedenberg noted that S&P’s expectation that small virus outbreaks or short blockings will not interfere with budget recovery.

S&P’s Mr Walker said another lengthy lockdown, such as Victoria’s three-month lockdown last year, would undermine the sovereign rating.

Victoria and NSW lost AAA rating during the pandemic, while the Australian Capital Territory received a negative outlook.


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