Australia Could Lose AAA Rating Within Months - Goldman Sachs Group Report

Unless Australia enacts immediate and drastic measures to control its deccelerating fiscal performance, it stands to lose its Standard & Poor’s AAA credit rating, Goldman Sachs Group Inc. said. If unattended, this could be placed on "negative outlook" just within months.

The United States investment bank, in a research note released on Wednesday afternoon, said it finds Australia's public debt burden still "favourable." But notes it expects a further deterioration of the nation’s finances spurred by the prevailing tumble of commodity prices, weaker economic growth and government legislative impasse.

“Australia’s poor fiscal performance scores poorly across S&P’s updated ratings methodology. Although Australia’s overall public debt burden remains favourable relative to its 11 other AAA-rated peers and contingent liabilities look manageable, significant external vulnerabilities persist and a mix of sharply lower commodity prices, weak growth and political impasse have resulted in an unprecedented degree of fiscal slippage over recent years,” Goldman economists Tim Toohey and Andrew Boak said.

Such factors “have combined to further aggravate long present external vulnerabilities and weigh further on Australia’s public finances.” If these persist – which had stripped $283 billion from the budget over forward estimates in the past 30 months, according to the SMH – Australia’s triple-A credit rating could get downgraded for the first time in 26 years, or since 1989, from "stable" to a "negative ratings outlook."

"Such a shift implies, by definition, that a formal ratings downgrade over the subsequent two-year period is a one-in-three chance,” the report said.

Once S&P formalises Australia's sovereign rating slash, Goldman said it is possible the nation’s big banks could follow suit. The four largest lenders are currently at AA-, three levels below the federal government. The downgrade will also weigh on the Australian dollar.

Australia is one of only 12 nations carrying an AAA score at S&P. The others are Canada, Britain, northern European countries such as Germany and Denmark, and Hong Kong and Singapore, among others. It is also one of just nine afforded the same rating by Moody’s Investors Service and Fitch Ratings.

The United States is just given an AA+ rating by S&P.

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