Australia’s AAA credit grade was affirmed by Standard & Poor’s Ratings Services, which cited the country’s stability, policy flexibility and economic resilience.
The nation has the ability to absorb large economic and financial shocks, although its strengths are moderated by a dependence on resources exports, external imbalances and high household debt, according to a report published in Melbourne today by S&P analyst Kyran Curry. The outlook for the rating is stable, it said.
Australia, benefiting from a mining boom fueled by demand from emerging economies in Asia, has avoided recession for 21 years. A dimming of China’s growth prospects and a plunge in metal prices has weighed on the outlook for Australia, where mining companies including BHP Billiton Ltd. are delaying expansion plans and industries such as manufacturing and tourism are hampered by the strength of the nation’s currency.
“The Australian economy performed relatively well in the fiscal year ended June 30, 2012, as mining exports and private investment in mining and liquefied natural gas offset weaknesses in domestic consumption and export sectors exposed to the high Australian dollar,” Curry wrote. “Yet considerable risks remain for Australia’s growth prospects, prosperity, and credit quality.”
Curry cited Australia’s dependence on trade with China as a risk. Should demand for resources weaken, there could be “disorderly dislocations” in the Australian economy, including jobs and property markets.
The federal government has promised to return the budget to surplus this financial year, while the largest states are trimming spending in response to declining tax revenues.
S&P predicted that Australia’s combined federal, state and local government budget deficit will be 2.5 percent of gross domestic product in 2012, with the balance returning to surplus in 2015. The ratings company expects the debt burden as a percentage of gross domestic product to trend lower after 2013.
“Australia’s public finances will continue to withstand potential adverse financial and economic shocks,” according to S&P. “The country’s consensus in favor of prudent budgetary policies will remain.”
The country also holds top credit scores from Moody’s Investors Service and Fitch Ratings.