Tuesday, September 07, 2010

They'll trash the economy. Yea, sure. Agency gives Australia top billing anyway

Whatever the shape of the next government, Australia remains a magnificent investment proposition.

The credit rating agency Standard & Poor's has reaffirmed Australia's top AAA rating saying there's no point in waiting for an election outcome because it won't make any difference.

However the agency warns of other risks including a collapse in the housing market and a squeeze on one of our banks.

"During the election it was comforting to us that both leaders were trying to almost outdo each other in a race to return to the budget to surplus," said S&P credit analyst Kyran Curry.

"There's been a lot of talk about rising levels of debt, but on a comparative basis Australia's debt remains low. In fact Australia is a stand out, even among AAA rated sovereigns."

Standard & Poor's decided to release the results of its annual reassessment of Australia ahead of the announcement about the new government in order to signal that it didn't matter...

"We've been getting a lot of questions from offshore investors and sidewards glances the longer this goes on, said Mr Curry. "We want to make it clear that no matter what the makeup of the government there is a strong commitment to fiscal conservatism here and a stable, mature and transparent political system you don't see in many other places."

"It is telling for us that the independents sought advice from the Treasury about the true state of the government's fiscal position," said Mr Curry. "Australians live well beyond their means but they expect the governments not to. There's a level of sophistication we don't often see elsewhere."

The agency says the risks to Australia's AAA rating include its dependence on commodity exports and its exposure to a housing market correction.

"Existing house prices have climbed about 50 per cent in five years," said Mr Curry. "The risk of a collapse is more elevated than in previous years. Australia's banks are heavily exposed to the residential property market. If one of the banks blew up we would be taking a look at the sovereign rating."

"This is not what we think is likely. Australia's banks are sound, liquid, well capitalised and we have given them some of the highest ratings in the world."

"What is most likely is a gradual drag on house prices rather than a collapse. We certainly don't see the growth of recent years as sustainable."

Australia has enjoyed the world's top credit rating since 1992 after losing it 1986 at the height of the "banana republic" currency crisis.

It shares the AAA rating with Canada, Germany, Singapore and the United States and also with the United Kingdom, although the agency has just placed the UK on "negative watch".

"We are worried about the commitment of the new UK administration to fiscal consolidation. It is not a worry we have here," said Mr Curry.

Treasurer Wayne Swan said Standard & Poor's had endorsed Labor's management of the crisis, and its plan to get the Budget back to surplus in 2013.

The Reserve Bank board meets in Adelaide today and will later release a statement outlining its view of the Australian economy.

ANZ job advertisement figures released yesterday showed advertised vacancies climbing a further 2.6 per cent in August. The TD Securities inflation index showed prices climbing at an annualised rate of 2.4 per cent.

Top billing

Australia AAA
Canada AAA
Germany AAA
Singapore AAA
United States AAA

United Kinggdom AAA, outlook negative

New Zealand AA+

Ireland AA, outlook negative
Japan AA, outlook negative
Spain AA, outlook negative

China A+

Russia BB+
Greece BB+, outlook negative

Standard & Poor's sovereign ratings

Published in today's SMH and Age

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