S&P: Commodity rally won’t save Australia’s AAA rating – TA

The Age (TA) carries an article this Thursday, with the rating agency Standard & Poor's (S&P) issuing a warning on the Australian economy, noting that Australia’s AAA credit rating remains at risk of a downgrade, despite the rally in commodity prices.

Australia's sovereign rating has been classified as "on watch" by S&P since July, meaning there is a one-in-three chance it will be lowered.

Key Quotes:

“Heading into the government's budget update of December 19, the fiscal situation looks considerably healthier than it did at May's federal budget thanks to the remarkable recovery in the price of coal, iron ore and other commodities.”

“But S&P analysts are not convinced that commodity prices will stay at these levels because it is largely driven by higher demand stemming from policy in China.”

“The ratings agency is forecasting 3 per cent growth from 2016 to 2018, which could be as low as 2.6 per cent in its "downside" scenario this year and as high as 3.3 per cent in its "upside" scenario in 2018, when interest rates should get to 2.25 per cent. It does not see the cash rate falling below the current record low of 1.5 per cent.”