Australia: Fiscal outlook downgraded – Westpac

Sandeep Kanihama FXStreet Contributor

Westpac analysts point out that Australia’s budget surplus was cut by $21.5bn over four years as softer economic outlook hits revenues.

Key Quotes

“The Federal government has sharply downgraded the fiscal outlook in its Mid-Year Economic and Fiscal Outlook (MYEFO), released today.”

“In particular the forecast budget surpluses for 2020/21 and 2021/22 have been reduced from $11.0bn and $17.8bn to $6.1bn and $8.4bn respectively.”

“The government has gone further and cut the wages forecast to 2.5% - no lift in wages growth from the 2019/20 forecast of 2.5% and in line with the Reserve Bank’s thinking.”

“We estimate that the difference between our own forecast that nominal GDP growth in 2020/21 would be lowered to 3.0% in this document and the government’s forecast of 2.25% is explained about 50/50 between a weaker wages/ prices forecast and a lower profile for commodity prices – largely centred around coal.”

“There are upside risks to the commodity price forecasts but we can understand why the government would be cautious around these forecasts in MYEFO - wanting to avoid a further fiscal downgrade when the 2020 Budget is announced on May 12.”

“Under these new fiscal estimates from MYEFO the fiscal position would change to deficits of $0.9bn and $5.6bn, respectively if the tax cuts were to be brought forward.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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