19 Feb 2015
Australia's AAA rating at risk - Standard & Poor’s
FXStreet (Bali) - A WSJ report on S&P rating agency warning of a potential downgrade to Australia's AAA credit rating is what is behind the latest AUD sell-off.
Key points - WSJ
"Standard & Poor’s Ratings Services has backed warnings by Australia’s central bank that the federal budget would be vulnerable to a global economic shock, which could put the country’s AAA rating at risk."
"Australia’s budget outlook has weakened sharply in the last six months as commodity prices have plunged, said S&P’s sovereign analyst Craig Michaels."
"Sliding prices of coal and iron ore, the country’s biggest export, are hurting economic growth, denting corporate profits, driving higher unemployment and eroding government tax receipts."
"Goldman Sachs recently calculated that Australia could lose A$500 billion ($390.6 billion) in national income in the next decade because of the drop in commodity prices, which includes a 50% drop in iron ore."
“If there is a significant external shock, it’s very likely that that would have a significant budget impact like it did in the global financial crisis,” Mr. Michaels told The Wall Street Journal.
Mr. Michaels said he expects government debt to rise above 20% of GDP in coming years, but said the rating would only come under direct pressure if debt moved closer to 30% of GDP.
“Given that debt is still low there is a bit of wriggle room there from a ratings perspective to absorb some of those revenue shocks, but we still be looking to see ongoing restraint in spending growth,” Mr. Michaels said.
Key points - WSJ
"Standard & Poor’s Ratings Services has backed warnings by Australia’s central bank that the federal budget would be vulnerable to a global economic shock, which could put the country’s AAA rating at risk."
"Australia’s budget outlook has weakened sharply in the last six months as commodity prices have plunged, said S&P’s sovereign analyst Craig Michaels."
"Sliding prices of coal and iron ore, the country’s biggest export, are hurting economic growth, denting corporate profits, driving higher unemployment and eroding government tax receipts."
"Goldman Sachs recently calculated that Australia could lose A$500 billion ($390.6 billion) in national income in the next decade because of the drop in commodity prices, which includes a 50% drop in iron ore."
“If there is a significant external shock, it’s very likely that that would have a significant budget impact like it did in the global financial crisis,” Mr. Michaels told The Wall Street Journal.
Mr. Michaels said he expects government debt to rise above 20% of GDP in coming years, but said the rating would only come under direct pressure if debt moved closer to 30% of GDP.
“Given that debt is still low there is a bit of wriggle room there from a ratings perspective to absorb some of those revenue shocks, but we still be looking to see ongoing restraint in spending growth,” Mr. Michaels said.