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Fitch Ratings confirms Australia rating at ‘AAA’ with stable outlook
(MENAFN) Fitch Ratings announced on Friday that it has affirmed Australia's long-term foreign currency issuer default rating at 'AAA' with a stable outlook. The agency attributes this strong rating to several key factors, including Australia's high income per capita, a solid medium-term GDP growth forecast, strong institutions, and an effective policy framework. However, Fitch noted that these strengths are somewhat offset by expected modest weakening in the country's fiscal metrics over the next two years.
Fitch's projections indicate that GDP growth in Australia will slow to 1.1 percent this year, down from 2 percent in the previous year. Looking ahead, the agency anticipates growth to rebound slightly, forecasting 1.7 percent in 2025 and 2.1 percent in 2026. The report emphasizes that while consumer spending is likely to remain subdued as households navigate high interest rates, a potential recovery in consumption could be supported by tax cuts, expected monetary easing in 2025, and a robust labor market that will help strengthen household balance sheets.
The ratings agency also expects the Reserve Bank of Australia (RBA) to initiate interest rate cuts starting in February 2025, projecting that the policy rate will decrease to 3.50 percent by the end of that year. This marks a shift from the current steady rate of 4.35 percent, which has been maintained since November 2023. The anticipated rate cuts are expected to provide some relief to households and stimulate economic activity.
In terms of inflation, Fitch forecasts that it will decline to the RBA's target range of 2 percent to 3 percent by the end of next year, down from 3.5 percent recorded in the third quarter of this year. This projected decrease in inflation aligns with the central bank's goals and could further support economic stability as Australia navigates its fiscal and monetary challenges.
Fitch's projections indicate that GDP growth in Australia will slow to 1.1 percent this year, down from 2 percent in the previous year. Looking ahead, the agency anticipates growth to rebound slightly, forecasting 1.7 percent in 2025 and 2.1 percent in 2026. The report emphasizes that while consumer spending is likely to remain subdued as households navigate high interest rates, a potential recovery in consumption could be supported by tax cuts, expected monetary easing in 2025, and a robust labor market that will help strengthen household balance sheets.
The ratings agency also expects the Reserve Bank of Australia (RBA) to initiate interest rate cuts starting in February 2025, projecting that the policy rate will decrease to 3.50 percent by the end of that year. This marks a shift from the current steady rate of 4.35 percent, which has been maintained since November 2023. The anticipated rate cuts are expected to provide some relief to households and stimulate economic activity.
In terms of inflation, Fitch forecasts that it will decline to the RBA's target range of 2 percent to 3 percent by the end of next year, down from 3.5 percent recorded in the third quarter of this year. This projected decrease in inflation aligns with the central bank's goals and could further support economic stability as Australia navigates its fiscal and monetary challenges.
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