http://www.theage.com.au/news/busin...tralias-ratings/2005/09/08/1125772609905.html
Fitch affirms Australia's ratings
September 8, 2005 - 7:08AM
Fitch Ratings, the international rating agency, has today affirmed the Commonwealth of Australia's Long-term foreign and local currency ratings at 'AA-plus' and 'AAA' respectively with a stable outlook.
The short-term foreign currency rating is affirmed at 'F1-plus' and the Country Ceiling at 'AAA'.
"Australia's sovereign ratings are supported by fiscal prudence, a strong banking system and a proven track record of managing the economy through adverse shocks." Fitch Sovereign Ratings Group senior director Paul Rawkins said.
"However, persistent current account deficits and rising net external indebtedness remain key constraints on the foreign currency rating, counterbalancing the government's net external creditor status."
Noting that Australia recently chalked up its 14th consecutive year of economic expansion, Fitch says there is good reason to believe that a 'soft landing' is at hand, following the strong asset price and household debt-driven growth of recent years.
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Domestic demand has cooled considerably against a background of high levels of household indebtedness, tighter monetary policy and soaring oil prices.
Nonetheless, unemployment has held steady at an historical low of around five per cent, wage pressures are mostly benign and interest rates appear to have peaked.
Continued economic momentum owes much to further gains in the terms of trade, rising export receipts and significant investment in the natural resource sectors.
Fitch expects growth to slow to a still respectable 2.5 per cent in 2005, before rising modestly in 2006-07, albeit below the long-term trend rate of 3.5 per cent.
Fitch says that high commodity prices and low unemployment have bolstered Australia's already robust public finances, generating higher-than-budgeted surpluses on the back of buoyant corporate and personal income taxes and falling welfare payments.
For 2005-06 the government has tabled a range of tax cuts consistent with a modest reduction in the budget surplus. At the same time, in a move that signals that Australia may be reaching the limits of public debt consolidation - net debt is forecast to decline to zero in the current fiscal year - the authorities have indicated that future surpluses/privatisation receipts will be partially directed into a dedicated fund to meet the public sector's unfunded pension liabilities.
Fitch welcomes the creation of this fund on the grounds that it will further strengthen the public sector's balance sheet while simultaneously boosting national savings.
External factors continue to weigh more heavily on the sovereign foreign currency rating. Higher consumption and the recent investment boom have highlighted Australia's perennial savings and investment imbalance.
Consequently, the current account deficit hit a record high of seven per cent of GDP in Q4 2004, despite sharp increases in commodity prices, while Australia's net external debt ratios - over 50 per cent of GDP and 255 per cent of current external receipts in 2004 - continue to dwarf most others in the broad 'AA' rating cohort.
Fitch notes that the trade deficit has started to narrow now on the back of further terms of trade gains and strong global demand, but it warns that higher international interest rates could constrain parallel improvements in the current account deficit as debt servicing costs rise.
Domestically, the rating agency is encouraged by signs that the housing market is cooling in a sustainable manner. However, it maintains that it is still too early to wholly discount a sharp fall in house prices and the knock-on effect that could have to consumer confidence and demand, if not the banks, which continue to enjoy strong credit profiles for the most part.
- AAP
Fitch affirms Australia's ratings
September 8, 2005 - 7:08AM
Fitch Ratings, the international rating agency, has today affirmed the Commonwealth of Australia's Long-term foreign and local currency ratings at 'AA-plus' and 'AAA' respectively with a stable outlook.
The short-term foreign currency rating is affirmed at 'F1-plus' and the Country Ceiling at 'AAA'.
"Australia's sovereign ratings are supported by fiscal prudence, a strong banking system and a proven track record of managing the economy through adverse shocks." Fitch Sovereign Ratings Group senior director Paul Rawkins said.
"However, persistent current account deficits and rising net external indebtedness remain key constraints on the foreign currency rating, counterbalancing the government's net external creditor status."
Noting that Australia recently chalked up its 14th consecutive year of economic expansion, Fitch says there is good reason to believe that a 'soft landing' is at hand, following the strong asset price and household debt-driven growth of recent years.
AdvertisementAdvertisement
Domestic demand has cooled considerably against a background of high levels of household indebtedness, tighter monetary policy and soaring oil prices.
Nonetheless, unemployment has held steady at an historical low of around five per cent, wage pressures are mostly benign and interest rates appear to have peaked.
Continued economic momentum owes much to further gains in the terms of trade, rising export receipts and significant investment in the natural resource sectors.
Fitch expects growth to slow to a still respectable 2.5 per cent in 2005, before rising modestly in 2006-07, albeit below the long-term trend rate of 3.5 per cent.
Fitch says that high commodity prices and low unemployment have bolstered Australia's already robust public finances, generating higher-than-budgeted surpluses on the back of buoyant corporate and personal income taxes and falling welfare payments.
For 2005-06 the government has tabled a range of tax cuts consistent with a modest reduction in the budget surplus. At the same time, in a move that signals that Australia may be reaching the limits of public debt consolidation - net debt is forecast to decline to zero in the current fiscal year - the authorities have indicated that future surpluses/privatisation receipts will be partially directed into a dedicated fund to meet the public sector's unfunded pension liabilities.
Fitch welcomes the creation of this fund on the grounds that it will further strengthen the public sector's balance sheet while simultaneously boosting national savings.
External factors continue to weigh more heavily on the sovereign foreign currency rating. Higher consumption and the recent investment boom have highlighted Australia's perennial savings and investment imbalance.
Consequently, the current account deficit hit a record high of seven per cent of GDP in Q4 2004, despite sharp increases in commodity prices, while Australia's net external debt ratios - over 50 per cent of GDP and 255 per cent of current external receipts in 2004 - continue to dwarf most others in the broad 'AA' rating cohort.
Fitch notes that the trade deficit has started to narrow now on the back of further terms of trade gains and strong global demand, but it warns that higher international interest rates could constrain parallel improvements in the current account deficit as debt servicing costs rise.
Domestically, the rating agency is encouraged by signs that the housing market is cooling in a sustainable manner. However, it maintains that it is still too early to wholly discount a sharp fall in house prices and the knock-on effect that could have to consumer confidence and demand, if not the banks, which continue to enjoy strong credit profiles for the most part.
- AAP
Cash will be king for the next 5-7 years in my books.