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15 Apr 2015
Moody's: Australia's Aaa rating supported by low debt, economic flexibility
FXStreet (Bali) - Moody's rating agency has issued an official update on Australia's Aaa sovereign rating, noting that it continues to be supported by low government debt and economic flexibility.
Global Credit Research - 15 Apr 2015 - official release
Moody's Investors Service says that Australia's Aaa sovereign rating is supported by the economy's large size, its flexibility and relatively robust growth as well as government debt ratios that are lower than in many similarly rated peers.
However, Moody's notes that Australia faces challenges from the high weight of commodities in merchandise exports and recent investment growth, difficulties in returning to a budget surplus, a large net international liability position and a significant increase in household debt and property prices in recent years.
Moody's conclusions were contained in its just-released credit analysis "Australia", which looks at the country's credit profile in terms of its Economic Strength [assessed as "very high (+)"]; Institutional Strength ["very high (+)"]; Fiscal Strength ["very high (+)"]; and Susceptibility to Event Risk ["low (-)"].
These represent the four main analytic factors in Moody's Sovereign Bond Rating Methodology. The analysis constitutes an annual update to investors and is not a rating action.
The report points out that Australia's economy is growing at a faster pace than many similarly rated peers, despite lower prices for several of the country's commodity exports, and the tapering of the mining-related investment surge over the last few years.
While the modest slowdown Moody's expects in China's economy over the next two years could lower Australia's resource-related investment and mining exports, liquid natural gas (LNG) exports will grow and, together with consumption growth, will keep Australia's GDP growth above 2% on average in 2015 and 2016.
Nonetheless, lower corporate tax revenues from the resource sector exacerbate the difficulties in returning the government's budget to a surplus, from a deficit over the last few years. The shift from fiscal surplus to deficit in 2009 has resulted in general government debt rising to above 30% of GDP in 2014 from below 10% in 2008. Although the current debt ratio compares favorably to many Aaa-rated peers, if fiscal deterioration is not reversed, it could eventually pose sovereign credit risks.
The report highlights that as external capital inflows have partly financed the country's high level of investment, Australia has consistently run current account deficits and built up a very large negative net international investment position. Nonetheless, and in contrast with some other current-account deficit countries, Australia has a relatively high domestic savings rate, which is a source of resilience against potential changes in the pattern of external inflows.
Moody's stable outlook on Australia's sovereign rating incorporates the potential risks from high household debt levels, slower growth and external financial volatility as well as the buffers against these risks such as substantial household assets, economic flexibility and likely policy responses to address fiscal and growth challenges.
Global Credit Research - 15 Apr 2015 - official release
Moody's Investors Service says that Australia's Aaa sovereign rating is supported by the economy's large size, its flexibility and relatively robust growth as well as government debt ratios that are lower than in many similarly rated peers.
However, Moody's notes that Australia faces challenges from the high weight of commodities in merchandise exports and recent investment growth, difficulties in returning to a budget surplus, a large net international liability position and a significant increase in household debt and property prices in recent years.
Moody's conclusions were contained in its just-released credit analysis "Australia", which looks at the country's credit profile in terms of its Economic Strength [assessed as "very high (+)"]; Institutional Strength ["very high (+)"]; Fiscal Strength ["very high (+)"]; and Susceptibility to Event Risk ["low (-)"].
These represent the four main analytic factors in Moody's Sovereign Bond Rating Methodology. The analysis constitutes an annual update to investors and is not a rating action.
The report points out that Australia's economy is growing at a faster pace than many similarly rated peers, despite lower prices for several of the country's commodity exports, and the tapering of the mining-related investment surge over the last few years.
While the modest slowdown Moody's expects in China's economy over the next two years could lower Australia's resource-related investment and mining exports, liquid natural gas (LNG) exports will grow and, together with consumption growth, will keep Australia's GDP growth above 2% on average in 2015 and 2016.
Nonetheless, lower corporate tax revenues from the resource sector exacerbate the difficulties in returning the government's budget to a surplus, from a deficit over the last few years. The shift from fiscal surplus to deficit in 2009 has resulted in general government debt rising to above 30% of GDP in 2014 from below 10% in 2008. Although the current debt ratio compares favorably to many Aaa-rated peers, if fiscal deterioration is not reversed, it could eventually pose sovereign credit risks.
The report highlights that as external capital inflows have partly financed the country's high level of investment, Australia has consistently run current account deficits and built up a very large negative net international investment position. Nonetheless, and in contrast with some other current-account deficit countries, Australia has a relatively high domestic savings rate, which is a source of resilience against potential changes in the pattern of external inflows.
Moody's stable outlook on Australia's sovereign rating incorporates the potential risks from high household debt levels, slower growth and external financial volatility as well as the buffers against these risks such as substantial household assets, economic flexibility and likely policy responses to address fiscal and growth challenges.