Fitch Downgrades Australia’s Rating Outlook
Fitch Ratings downgraded Australia’s rating outlook citing the impact the global coronavirus, or Covid-19, pandemic on the economy and public finances.
The rating agency affirmed Australia’s sovereign ratings at ‘AAA’ but lowered the outlook to ‘negative’ from ‘stable’.
Fitch said “Growth will fall sharply in 2020 and government spending in response to the health and economic crisis will cause large fiscal deficits and a sharp increase in government debt/GDP.”
GDP is forecast to fall 5 percent this year due to the coronavirus containment measures. Although these measures contained the spread of the virus, they also weighed on household spending, business sentiment and investment.
A gradual recovery is expected to begin in the second half of the year and GDP is seen expanding 4.8 percent next year.
The agency noted that exports would be affected if China’s recovery were to falter.
The government has unveiled three fiscal packages recently to cushion the impact of the coronavirus shock. The general government deficit is forecast to rise to 6.9 percent of GDP in the fiscal year ending June 2020 and to 9.0 percent in FY21 from 1.2 percent in FY19.
Fitch forecasts Australia’s gross general government debt to jump to 58.2 percent of GDP by FYE21 from 41.9 percent at FYE19 on the back of the wider fiscal deficit.
Nonetheless, the ‘AAA’ rating reflects Australia’s strong institutions and effective macroeconomic policy framework, which has supported a long record of stable economic growth prior to the current exogenous shock.
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