Fitch cuts Australia's sovereign outlook to negative, affirms 'AAA' rating

[SYDNEY] Fitch Ratings downgraded its outlook on Australia's coveted AAA rating on Friday to "negative" from "stable", citing the heavy blow to the economy and public finances from the Covid-19 pandemic.

It affirmed Australia's prized rating but said a downgrade was possible in the absence of a sufficient post-coronavirus fiscal consolidation strategy or in the face of economic or financial sector distress.

The move follows a similar action by global ratings agency S&P last month. Australia is facing its deepest recession on record and the first in about three decades even as it relaxes anti-virus measures and reopens its economy sooner than expected.

Australia has reported just over 7,000 Covid-19 infections with 101 deaths, well below several other advanced nations.

In an effort to cushion the blow to its economy, the government has announced a A$194 billion (S$180.38 billion) fiscal stimulus package while the central bank has slashed interest rates to a record low and launched an "unlimited" quantitative easing programme.

Despite the measures, Fitch forecast Australia's A$2 trillion economic output to shrink 5 per cent this year.

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"Risks are tilted to the downside given uncertainties around the spread of the coronavirus domestically and globally," Fitch said.

It expects fiscal deficits to swell at both the federal and state levels, with the gross government debt seen jumping to 58.2 per cent of gross domestic product (GDP) by June 2021 from 41.9 per cent last year.

"This stands well above the current Fitch forecast 'AAA' median of 44 per cent of GDP in 2021," it pointed out.

In addition, household debt, at 186.8 per cent of disposable income, is also among the highest of AAA rated sovereigns and poses an economic and financial stability risk, the ratings agency said.

Fitch also forecast a return to a slight deficit of 0.2 per cent of GDP in 2020 and 0.7 per cent in 2021 from surplus of 0.6 per cent in 2019.

REUTERS