Ratings agency Standard & Poor’s (S&P) yesterday said its downgrade of airline Qantas and a decision by Holden to stop making cars locally were not signs that the Australian economy was in trouble.
S&P downgraded Australian carrier Qantas to “junk” status this month after the airline issued a shock profit warning and slashed jobs. The move, coupled with fellow iconic Australian brand Holden deciding to stop manufacturing cars in Australia from 2017 with the loss of 2,900 jobs, raised fears about the economic impact on the nation.
However, in a comment piece for Fairfax newspapers, the ratings agency said it should not be regarded as a sign that the Australia’s economy was struggling. The agency currently has a top-notch “AAA” rating on the economy, with a stable outlook.
S&P said downgrading Qantas reflected competition in the airline sector, rather than changing consumer sentiment and, as such, did not reflect broader economic conditions.
“It was because competition in the domestic market is now much more intense than we have ever seen before, and Qantas needs to evolve its competitive strategy if it is to stay profitable,” S&P said.
“When we lowered our ratings on Qantas ... we had not changed our opinion of Qantas’ strong financial flexibility and good track record of responding to earnings pressures through cost-cutting and other measures,” it added.
S&P added that General Motors’ decision to shut its Holden plants in Australia would not lead to a recession, citing the relatively small contribution the industry made to the broader economy.
“While no socially sensitive person would applaud the loss of jobs, from a credit perspective, such structural change may turn out to be a good thing for the economy, as generally it leads to more productive use of finite resources,” the ratings agency wrote.
“In our view, Australia has a flexible and dynamic economy that typically allows resources to move to where they’re more valuable. Take the mining investment boom as a case in point,” the agency added.