MOODY'S: Australia's triple A rating and stable outlook is safe

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Moody’s Investors Service has reaffirmed Australia’s Aaa rating and stable outlook, saying the the country’s future is underpinned by economic resilience in an uncertain world.

The ratings agency says Australia also has a very robust institutional framework and stronger fiscal metrics than many other triple A-rated countries.

However, there are challenges, including high and rising household debt, which leaves the economy and banking sector vulnerable to negative shocks, a federal budget deficit that’s proving difficult to reduce, plus exposure to lower commodity prices and China’s slowdown.

In July last year, Standard and Poor’s placed Australia’s AAA rating on credit watch negative from its previously stable outlook, citing persistent government budget deficits as an issue.

Moody’s, however, has kept Australia’s Aaa sovereign credit rating despite the increase in government debt, which the agency believes the nation can afford.

Today, Moody’s reaffirmed its position, saying Australia’s debt burden remains moderate.

“The Australian economy’s large size, high income levels, competitiveness, flexibility and growth record combine to offer exceptional economic strength, which supports the Aaa rating,” the agency says in its latest regular update on Australia’s sovereign rating.

Moody’s has adjusted Australia’s economic strength score upwards to “Very High +” from an indicative “Very High -”.

This reflects the economy’s relatively robust GDP growth given its high income levels and its track record of resilience to multiple shocks since the late 2000s.

“Australia’s potential growth is higher than most Aaa-rated sovereigns,” says Moody’s.

“In particular, population growth is stronger, ageing is slower, and financial provisions for a greying population are more substantial than in many advanced economies.”

Moody’s expects real GDP growth to remain robust, in the range of 2.5% to 3% from 2017 onwards, as economic activity shifts from mining to services.

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