S&P downgrades Australia to negative

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Derek Rose
(Australian Associated Press)

 

S&P Global Ratings has downgraded its outlook on Australia from stable to negative as a result of the government’s stimulus measures.

The agency has also reaffirmed its AAA/A-1+ long- and short-term local and foreign currency ratings.

S&P expects the government’s debt burden to weaken materially as a result of the stimulus and believes Australia faces fiscal and economic risks that are “tilted toward the downside”.

“The COVID-19 outbreak has dealt Australia a severe economic and fiscal shock,” the ratings agency said.

“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.”

This comes after American credit rating agency Fitch downgraded Australia’s big four banks to A+ from AA- on Tuesday.

The agency said the move reflected its expectations of a significant economic shock in 1H20 due to measures taken to halt the spread of COVID-19, with the government pledging $320 billion to prevent a crisis.

Fitch said it expected GDP to shrink in Australia in 1H20, with only a modest recovery starting in the second half and extending into 2021.

“Unemployment is likely to spike sharply and remain very elevated relative to pre-pandemic levels even after the recovery is underway,” it said.

“The current operating environment scores incorporate this base case and the outlook on this factor would likely be revised to stable should the baseline case scenario eventuate.”

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