Fitch Ratings has reaffirmed Australia’s AAA credit rating and has described the country’s outlook as “stable” despite economic headwinds including a slowdown in GDP growth.
In commentary released alongside its latest rating decision, Fitch assessed that Australia’s growth outlook over the medium term remains “sound”, supporting its AAA rating.
“Australia’s rating is underpinned by the country’s high income per capita and sound medium-term GDP growth outlook, as well as strong institutions and an effective policy framework, which facilitated nearly 30 consecutive years of economic growth before the COVID-19 pandemic and continues to support economic resilience amid global shocks,” the ratings agency said.
“The recent outperformance of public finances relative to our earlier expectations further supports the stable outlook.”
Fitch noted that the federal government delivered a surplus of 1.0 per cent of GDP (on a government finance statistics basis) in FY2023 – its first surplus in 15 years – as a result of higher revenues from elevated commodity prices and a tight labour market.
“We forecast a sustained, but narrower, surplus of 0.5 per cent in FY24, as commodity prices begin to ease and the labour market loosens slightly,” it said.
“The government has saved the bulk of the recent revenue windfalls, indicating a desire to maintain a fiscal stance supportive of reducing inflation and pursue prudent fiscal policies.”
In a statement on Friday, Treasurer Jim Chalmers said: “This is a powerful statement backing the Albanese government’s responsible economic plan.”
“It shows our budget strategy is right for the times and right for the challenges we confront and is helping support Australians through these difficult economic times.”
Meanwhile, Fitch forecast that Australia’s GDP growth will slow from 3.7 per cent in 2022 to 1.7 per cent in 2023 and 1.5 per cent in 2024.
“High interest rates, which have pushed up debt-servicing costs, will continue to weigh on private consumption in 2024. Exports have been resilient, but we expect net exports to dampen growth in 2024 due to China’s property weakness.
“The sharp immigration rebound, however, implies a resilient outlook compared with peers for aggregate GDP growth, even as per capita GDP drops modestly.”
The ratings agency forecast a medium-term potential growth of 2.1 per cent for Australia, putting it among the highest of its peers.
Fitch also said it believes that the Reserve Bank of Australia (RBA) has reached the end of its tightening cycle following its latest rate hike this month. This is despite inflation remaining high with “somewhat sticky services inflation”, according to the ratings agency.
“We see the cumulative level of rate hikes as consistent with bringing inflation back to the RBA’s 2–3 per cent target over the next two years, as growth has moderated and the labour market is showing slight signs of softening,” it said.
Dr Chalmers noted that Australia is one of only nine countries to be rated AAA by all three major credit rating agencies.
“The Albanese government remains focused on dealing with the immediate cost‑of‑living challenges Australians are facing, while at the same time building a stronger, more productive, and more resilient budget and economy,” he concluded.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
