Fitch: Australia policy uncertainty rises after election

Ratings agency Fitch, in its latest update on Australia, says the policy uncertainty in the nation has increased after elections.

Fitch says, “The projected narrow victory for Australia's Coalition government in the recent Federal election will make policy implementation more of a challenge from the previous parliament, and raises uncertainty over the medium-term legislative agenda”.

Earlier this month, both S&P and Moody’s warned about a potential ratings downgrade if the fiscal situation does not improve.

Key points

A credible long-term fiscal consolidation strategy remains a key sovereign rating consideration for Australia.

It remains to be seen whether the fiscal outlook will be altered by the new balance of power in parliament.

A shock to the domestic housing market, while not our core scenario, is another potential tail risk.

Australia's credit profile remains consistent with its 'AAA' rating, with relatively low public debt and high growth compared with its peers.

The sovereign retains some fiscal headroom, with growth expected to be 2.6% and 2.9% in 2016 and 2017, respectively. Its ratings strengths are balanced by a high level of external indebtedness and dependence on commodities and Chinese demand, however.