Downgrade puts our triple-A rating at risk

A LEADING rating agency has affirmed Australia’s prized triple-A rating but downgraded its outlook on the nation from “stable” to “negative”.

Fitch Ratings has forecast Australia’s $2 trillion economy will contract 5 per cent this year amid a slump in activity this quarter as a result of virus containment measures.

“While these measures have effectively curbed the spread of the virus, they also constrained household consumption and reduced business sentiment and investment,” the agency said in report yesterday.

It also warned that gross public debt, including debt at the state level, was on track to hit 60 per cent of economic output, measured by gross domestic product, by 2024.

That would be up from 22 per cent in 2011, when Fitch upgraded its rating on Australia to triple-A.

Fitch expects a gradual economic recovery to begin in the second half this year and has affirmed its triple-A rating on Australia.

But it said a downgrade was possible in the absence of a fiscal consolidation strategy or if there were economic or financial sector distress.

Two of the world’s top three ratings agencies now have a negative outlook on Australia.

Last month, Standard and Poor’s lowered its outlook on Australia from “stable” to “negative”, citing government stimulus measures.

“We could lower our rating within the next two years if the COVID-19 outbreak causes economic damage that is more severe or prolonged than what we currently expect,” S&P Global Ratings said.

Federal Treasurer John Frydenberg said Fitch’s decision to reaffirm Australia’s triple-A credit rating was an expression of confidence in the Government’s handling of the pandemic, and its record of economic management.

Australia is still one of only 10 countries with a triple-A credit rating from all three major ratings agencies.