Australia risks losing its top credit rating from Standard & Poor’s for the first time in more than two decades, Goldman Sachs Group Inc said.
Plunging commodity prices, weaker economic growth and government difficulties in passing legislation are expected to spur a further deterioration of the nation’s finances that could lead S&P to place its “AAA” sovereign rating on negative outlook, analysts Tim Toohey and Andrew Boak said.
Australia’s economy is struggling to navigate the end of a mining investment boom, a slowdown in China and a drop in federal government revenue that is the result of falling prices for key exports such as iron ore.
Goldman Sachs estimates that Australian Treasurer Joe Hockey will reveal a further A$55 billion (US$44 billion) hole in the government’s finances when he delivers the budget on May 12.
“The recent sharp decline in Australia’s terms of trade and domestic political impasse have combined to further aggravate long present external vulnerabilities and weigh further on Australia’s public finances,” Toohey and Boak wrote in a note to clients. “A continuation of the recent pattern of fiscal slippage has Australia on a path to potentially experience its first ratings downgrade since 1989.”
S&P has rated Australia “AAA” since 2003, when it increased its score by one level from “AA+.” Its ranking fell as low as “AA” when it was last cut in the 1980s and it remained at the third-highest investment-grade score for almost 10 years before it was boosted to “AA+.”
“The firm’s previously published views on the Australian sovereign still stand and we won’t be commenting further on the matter until after the federal budget is delivered,” Melbourne-based S&P spokesman Richard Noonan said yesterday.
Australia is one of just 12 nations to carry a “AAA” score at S&P, and one of just nine to also hold the same ranking at Moody’s Investors Service and Fitch Ratings.
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