Fitch affirms Australia at 'AAA', outlook Stable

The US-based ratings agency, Fitch ratings, came out with its latest credit report on the Australian economy, affirming its sovereign rating at AAA, while maintaining a stable outlook.

Main Points:

Fitch Ratings has affirmed Australia's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'AAA'.

The Outlook is Stable. Australia's senior unsecured local-currency bond ratings are also affirmed at 'AAA' and 'F1+'.

The Country Ceiling is affirmed at 'AAA' and the Short-Term Foreign- and Local-Currency IDRs at 'F1+'.

Key Rating Drivers:

Australia's 'AAA' rating reflects the country's high income levels, strong governance and effective policymaking institutions

Persistently high budget deficits have eroded Australia's fiscal strength relative to 'AAA' peers. 

Policy measures introduced in the FY18 budget, if fully implemented, will help lower the deficit earlier than Fitch had expected. 

We expect gross general government debt (GGGD) to peak at a slightly higher level (42.3% of GDP in FY18) than our September 2016 projections due to new government debt financing of infrastructure projects

Fitch's fiscal forecasts are underpinned by steady economic growth. 

High household debt, at 189% of disposable income in 4Q16, has been supported by rising house prices and low interest rates and is a vulnerability for the economy and fiscal position. 

A flexible exchange rate, strong financing flexibility and extensive currency hedging mitigates some of the risks from the country's high net external debt/GDP.