“The outlook revision reflects our rising confidence in Australia’s path of fiscal consolidation and the stabilisation of the public debt ratio over the medium-term, supported by the underlying strength of the economic recovery despite a near-term setback from recent pandemic-related lockdowns,” Fitch said in a ratings update on Wednesday.
Fitch Ratings is confident Australia’s economic recovery will continue with the economy forecast to grow by 4.5 per cent in 2022 compared with a median of 3.6 per cent among other AAA rated countries.
The labour market too is predicted to “snap back rapidly” with the unemployment rate forecast to average 4.7 per cent in 2022, which would be the lowest annual rate since 2008.
The ratings agency also recognised Australia’s accelerated pace of vaccination, noting it has allowed “a gradual easing in restrictions that will facilitate a strong rebound in consumption from pent-up demand.”
But amid the praise, Fitch also warned that it could rethink its ratings decision based on the government’s ability to stabilise the general debt/GDP ratio over the medium term. Other factors that could lead to a downgrade include economic or financial sector distress resulting from impaired household debt-servicing ability.
Despite some heavy blows to its economy as a result of the COVID-19 pandemic, Australia remains one of only nine countries to hold on to a AAA credit rating from all three major credit agencies.
In a statement on Thursday, the Treasurer welcomed Fitch’s expression of confidence, hailing it a win for its economic management.
“The Morrison government’s economic recovery plan is working, but the job is not done yet. We must stick to the National Plan agreed to at National Cabinet to open up safely and secure our economic recovery,” Josh Frydenberg said.
