The rating agency is of the view that the recent budget announcements are a path to fiscal balance, however, additional restrictive measures are still required. Of particular concern was their view of the potential for wage growth and inflation to remain on the low side, with downside risk to the government’s current projections of achieving surplus by 2021.
According to Standard & Poor’s, Australia’s international investment position remains a major weakness in the sovereign credit profile. At 246% of current account receipts, Australia’s net external liabilities are the second largest among all investment-grade rated sovereigns, just behind the U.S. This weak external position is a result of decades of sizeable current account deficits, financed in part by external borrowing. While the level of debt was seen as a problem overall, the agency expects Australia’s external borrowers to maintain easy access to foreign funding.
The agency view’s Australia’s economic growth as sound. It estimates headline GDP growth to be around 2.3% in 2017 and expects the growth rate to rise to around its potential growth rate in the following years. The agency’s credit outlook has been negative since July 2016.