Australia could be a step closer to losing its vaunted triple A credit rating after a deeply divided electorate left the country in limbo and foreshadowed a hung parliament where no party holds outright power. The uncertain outcome of Saturday’s federal election heightened fears Australia could be consigned to three years of minority government and paralysis on budget reform, a scenario that is expected to cause market jitters on Monday.
Australia’s debt levels, while relatively low on a global scale, have been heading in the wrong direction for years. All the most ambitious attempts to right the fiscal ship have been sunk by the ruling coalition government’s lack of power in the upper house Senate. Rating agencies have been patient with the political process up to now, but there are signs time might be running out.
In May, Moody’s noted that governments of all stripes were finding it hard to rein in spending, and budget deficits had been repeatedly revised higher. Standard & Poor’s has been conspicuous in its silence since Morrison handed down his 2016/17 budget in May, prompting market speculation that it was considering changing Australia’s outlook to negative, a precursor to a potential downgrade.
A cut of rating would be a negative factor for both AUD and Australian stocks market.
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