All three credit ratings agencies have Australia with top grades and that's extremely rare in the world today.
Fitch last affirmed Australia at AAA in December and their GDP forecast for this year remains +1.5%. They write that the RBA is likely at the end of the tightening cycle.
Some highlights in the release:
Strong Institutions Support Rating: Australia's rating is underpinned by the country's high income per capita, as well as strong institutions and an effective policy framework, which facilitated nearly thirty consecutive years of economic growth before the Covid-19 pandemic and continues to support resilient growth outcomes amid global shocks. The recent outperformance of public finances relative to our expectations further supports the Stable Outlook.
Fiscal Performance Improves: On a general government (GG) basis, we forecast the fiscal deficit to narrow to 1.2% of GDP in FY23 (ending June 2023), from 3.8% in FY22, on consolidation at the federal and aggregate state level. The federal government is set to achieve its first underlying cash surplus in 15 years at 0.2% of GDP in FY23, from a 1.4% deficit in FY22, according to the FY24 budget on 9 May. This is well below the 1.5% of GDP FY23 deficit forecast in the October 2022 budget due to robust revenue from a strong labour market and buoyant commodity prices, combined with spending restraint.
Slight Deficit Widening: We forecast a slight widening of the GG deficit to 1.6% of GDP in FY24. Still, we expect a slightly lower federal underlying cash deficit in FY24 than the budget, as we forecast higher commodity prices and nominal GDP growth. The federal budget shows a return to a modest 0.5% of GDP underlying cash deficit, against a 1.8% forecast in the October 2022 budget. The commitment in the budget to save most of the revenue windfalls over the five-year budget horizon signals a commitment to prudent fiscal management.
Structural Fiscal Challenges: We forecast GG debt to tick up slightly to 49.7% of GDP in FY25, from a Fitch-estimated 49.1% in FY23 (AAA median 36.3%), before gradually trending down. Slowing nominal GDP growth, moderating commodity prices and structural spending pressures, particularly from the National Disability Insurance Scheme (NDIS), are expected to push the GG deficit up to 2% of GDP in FY25, before narrowing.
