Here's Why S&P Has Affirmed Australia's AAA/A-1+ Credit Rating

Standard & Poor’s has affirmed its AAA/A+ credit rating on the Australian Government.

The ratings agency says Australia has a ‘strong ability to absorb large economic and financial shocks’, thanks to a flexible fiscal and monetary policy, resilient economy, stable public policies, and relatively high GDP per capita of about $US66,000 in 2012.

On the other hand, it notes Australia’s high external imbalances, dependence on commodity exports, and high household debt.

S&P expects growth of the Australian economy to slow to 2.6% in the 2012-13 financial year from 3.4% the previous year thanks to a slowdown in mining investment.

Growth will improve to 3% this year as other industry sectors are spurred on by low interest rates to pick up the slack, and commodity exports increase.

Government debt is expected to peak at 20% of GDP in 2014 before gradually declining.

“We could lower the ratings if external imbalances were to grow significantly more than we currently expect, either because the terms of trade deteriorates quickly and markedly, or the banking sector’s cost of external funding increases sharply,” S&P warns.

“Such an external shock could lead to a protracted deterioration in the fiscal balance and the public debt burden. It could also lead us to reassess Australia’s contingent fiscal risks from its financial sector.”

Now read: CHARTS: Here’s Why Moody’s Says Australia Deserves Its AAA Rating

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