Fitch was the first to react to Monday's numbers, noting that despite the slight fiscal deterioration, Australia's budget outlook was still consistent with a AAA rating, Reuters reported. Moody's also echoed that view, stating that Monday's budget update was in line with a AAA rating, Reuters said.
S&P said Canberra was not in danger of an immediate downgrade, but it did warn that Monday's worsening projections increased the risk of a future downgrade.
"Over the coming months we will continue to monitor the government's willingness and ability to enact new budget savings or revenue measures to reduce fiscal deficits materially over the next few years," the agency said in a statement.
In July, S&P downgraded Australia's outlook to negative from stable, warning that without "the implementation of more forceful fiscal policy decisions, material government budget deficits may persist for several years with little improvement." A month later, Moody's downgraded the outlook of Australia's 'Big Four' banks to negative, pointing out that low interest rates were hurting profit growth.
Indeed, it's simply a matter of time before a downgrade occurs, explained Jonathan Pain, author of investment newsletter The Pain Report.
"Today's update confirms that the economy is weaker than what most economists were expecting," he explained. A key pillar of growth in recent years has been the strong housing sector, but the construction cycle is now slowing so the future does indeed look grim, he added.
Tunrnbull's conservative government must unveil new policy changes in order to prevent a downgrade, Hutley warned. "If we don't do something now, eventually we'll end up in a banana republic," Hutley continued, referring to a term used for countries that depend on exports of a certain resource.
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