Fitch Affirms Australia’s Rating, But Flags Mounting Budget Risks
General government deficit will reach 2.6% of GDP in fiscal 2025, Fitch said
2 min
SYDNEY—Fitch Ratings affirmed Australia’s AAA sovereign credit rating with a stable outlook, even as it highlighted that the country’s high debt relative to countries with similar ratings.
Fitch said the country retains a commitment to the same rules for fiscal sustainability that helped to underpin close to 30 years of economic expansion before the pandemic.
“Australia’s rating is underpinned by the country’s high income per capita and sound medium-term growth outlook, as well as strong institutions and an effective policy framework,” Fitch said in a statement on Monday
It warned that Australia’s fiscal metrics are set to weaken modestly in the next two years. But it anticipated deficits and overall debt would be contained over the medium term, supporting the stable outlook.
The affirmation of the top rating comes despite ongoing concerns about the pace of spending over the past year as the federal government deals with an explosion in costs linked to the national disability insurance scheme while at the same time cutting income taxes.
Government spending measures aimed at cushioning the rising cost of living on households, and falling commodity prices, will put pressure on the budget, Fitch said.
Australia’s general government deficit, which consolidates federal, state and local governments, will reach 2.6% of GDP in the 12 months through June, 2025, from 1.6% in fiscal 2024 and 0.8% in fiscal 2023, Fitch said.
“Aggregate state deficits have been high over the past couple of years, offsetting surpluses at the federal level,” Fitch said. “We also forecast deficit reduction at the state level to be gradual, given a still-large infrastructure development pipeline.”
Rising aged care and the NDIS will continue to pressure the budget, though efforts are under way to contain these costs, it added.
Fitch forecasts economic growth to slow to 1.1% in 2024, from 2.0%, but expects a gradual acceleration in activity from late this year, driving growth to 1.7% in 2025 and 2.1% 2026.
“A recovery should be supported by income tax cuts, probable monetary easing in 2025 and a healthy labor market, which should buoy household balance sheets,” the ratings agency said.
Fitch expects the Reserve Bank of Australia will start to cut interest rate cuts in February, with the policy rate reaching 3.50% by the end of next year, after being on hold at 4.35% since November 2023.
Underlying inflation appears set to trend down to the RBA’s 2%-3% target band by end-2025, from 3.5% in the third quarter, the ratings agency said.
“Still, risks tilt toward delayed cuts given persistent services inflation and a still-tight labor market, with brisk employment growth, low 4.1% unemployment rate and a record participation rate in September 2024,” it added.
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Australian shares fell on Thursday as Wall Street weakness, rising oil and persistent rate concerns weighed on most of the market. The S&P/ASX 200 declined 0.72 per cent to 8,702. The All Ordinaries lost 0.66 per cent to finish at 8,897. Mining stocks were hit particularly hard, while real estate also dragged on the index. …
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2 minAustralian shares fell on Thursday as Wall Street weakness, rising oil and persistent rate concerns weighed on most of the market.
The S&P/ASX 200 declined 0.72 per cent to 8,702. The All Ordinaries lost 0.66 per cent to finish at 8,897. Mining stocks were hit particularly hard, while real estate also dragged on the index.
Energy was the notable exception, gaining more than one per cent as Brent crude traded above US$103 a barrel. Oil had moved higher amid uncertainty surrounding potential US diesel-export restrictions and broader geopolitical supply risks. The move supported energy producers but renewed concern about inflation inputs across transport and the wider economy.
Gold shares were weak even as spot bullion remained historically elevated. The All Ordinaries Gold index fell about 2.25 per cent, showing that equity performance can diverge from the commodity because of valuation, currency, operating and company-specific factors.
Zip was a prominent loser, falling 11.38 per cent after the company reported short sales after the previous close. Nine Entertainment also weakened after UBS analysts warned of near-term revenue challenges associated with its advertising-supported subscription tier.
Premier Investments led larger winners despite caution about the retail environment. Breville, in which Premier owns a significant stake, also appeared among leading movers. In the broader ASX 300 screen, Myer gained 11.43 per cent and MAAS Group rose 7.93 per cent, while Lotus Resources fell 10.53 per cent. These percentage moves should be checked against company announcements and trading liquidity before attributing causes.
The Australian dollar was broadly flat at US70.38 cents. Spot gold was around US$4,280 an ounce, Brent crude approximately US$103.08 a barrel and iron ore near US$96.90 a tonne late in the session.
The rate outlook remains the central domestic catalyst. Labour-market weakness has not eliminated the possibility of an RBA increase next week, leaving banks, listed property and other rate-sensitive sectors exposed to changing expectations.
Market dashboard
S&P/ASX 200: 8,702, down 0.72 per cent.
All Ordinaries: 8,897, down 0.66 per cent.
Best sector: Energy, up more than one per cent.
Weakest areas: Real estate and materials were the major drags; confirm final sector percentages before publication.
Material winner: Premier Investments led the large-company gainers. Confirm its final closing move from the ASX before publication.
Material loser: Zip, down 11.38 per cent.
ASX 300 percentage leader: Myer, up 11.43 per cent.
ASX 300 percentage laggard: Zip, down 11.38 per cent.
AUD/USD: Approximately US$0.7038, broadly flat.
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