Well, that’s not really new news is it, that ratings agency S&P Global is putting Australia’s triple-A credit rating on negative outlook, saying there had been a “substantial deterioration” in the country’s finances and which is now facing the risk of a deep recession.
Australia has the top rating from the world’s three major agencies – S&P, Moody’s and Fitch.
Australia is the first of 11 nations rated AAA by S&P that have been put on a negative outlook since the coronavirus outbreak.
Let’s see if S&P does the same to the other Triple As such as Singapore (which is already in recession and just spent $US19 billion bailing out Singapore Airlines), Switzerland, the Netherlands, Germany and the US and Canada where trillions of dollars in support packages is being committed to soften the slump triggered by COVID-19.
Don’t hold your breath, especially about the US which really should be a AA rated economy, but because the US dollar is the world’s main currency, is supported by American owned ratings group like S&P.
The fact is that a downgrade for Australia was always on the cards because of the massive support packages like Jobseeker, which went through Federal Parliament.
S&P said yesterday that Australia is already in recession, and forecasts GDP per person to shrink by 6.4% this year and then by another 7.2% in 2021.
Reserve Bank governor, Philip Lowe warmed us up for a recession in his post-RBA board meeting statement on Tuesday when he said:
“A very large economic contraction is, however, expected to be recorded in the June quarter and the unemployment rate is expected to increase to its highest level for many years,“ he wrote in his statement.
That will be emphasised in the first of two Financial Stability Reviews for 2020 from the RBA to be released later today (Thursday).
S&P said yesterday Australia had strong institutions, credible monetary policy and a floating exchange rate which all helped support the country’s triple-A rating.
“We expect the Australian economy to plunge into recession for the first time in almost 30 years, causing a substantial deterioration of the government’s fiscal headroom at the ‘AAA’ rating level.
“Net government debt and relative interest cost nevertheless are likely to remain at elevated levels for a number of years.”
A downgrade in ratings is normally associated with an increase in international borrowing costs, but global interest rates are going to remain low for years to come. The RBA says the current Australian cash rate of 0.25% will remain in place for at least the next three years.
Borrowing costs will not be a concern for at least the next decade on current indications. That applies to all major economies. In fact Japan and much of Europe have had negative interest rates for years and long periods of quantitative easing by central banks.
S&P said it expects federal and state budgets to deteriorate sharply this year and next with only a recover starting in 2022.
It said it will take time for the budget to repair even if stimulus measures end quickly, adding government revenues will take years to properly recover.
“Revenue headwinds, including company and personal income taxes, consumption taxes, and property conveyance duties, and rising social welfare payments and health costs will drag on Australia’s general government balance during the next few years, even as the government’s large stimulus packages cease,” it said.
“We believe there could be more fiscal stimulus packages to come and that economic conditions could further deteriorate, pushing the expected recovery beyond our current expectation of late 2020.”
This is not new news for those in Australia watching the economy and the moves by the Federal and state governments and the RBA to soften the blow to the economy, jobs and business.
The real problem countries will be Spain, Italy, Germany, France, the UK, US, Indonesia, India and parts of Africa and South America where COVID-19 is having a very damaging impact on business, spending and life.
