Iron-ore's plunge has put Western Australia state's credit rating under pressure, but that's not likely to imperil Australia's AAA rating just yet, analysts said.
"Undoubtedly, Australia's fiscal position has weakened over the past year, and the May Budget will almost certainly reveal upward revisions to forecast budget deficits, and consequently government debt," analysts at ANZ said in a note Thursday. But it added, "Despite the deterioration in the fiscal outlook, current forecasts suggest that net government debt is unlikely to hit levels that could threaten Australia's sovereign credit rating."
The country's outlook has taken a big hit from declines in the prices of key commodity exports, particularly iron ore, as demand from China wanes.
Iron-ore prices are down more than 50 percent over the past year, with the April contract Nymex iron ore 62 percent FE CRF China trading at $49.30 a tonne Thursday, compared with around $108.50 12 months ago.
The metal's outlook isn't likely to find much support from data Thursday showing China's manufacturing activity fell to a one-year low in April. The flash HSBC Purchasing Managers' Index was at 49.2, below expectations and down from March's 49.6. A figure below 50 signals contraction.
That's already led S&P to put Western Australia state's rating on Credit Watch negative, indicating a rating change could soon be in the offing.