Australia: Uncontroversial Budget with Few Risks to AAA Rating - Nomura
Research Team at Nomura, suggests that the Australian budget looks
likely to have little impact on macro and market prospects over the
coming year or two.
Key Quotes
“Deficit
and debt levels have been revised a fraction higher, but not enough to
seriously concern rating agencies in our view. A number of policy
changes have been announced, but there are no big bang initiatives on
the infrastructure front, meaning the burden of policy adjustment will
continue to fall on the cash rate and AUD.
Overall, we see only
limited market impacts from budget. The higher estimates for CGS on
issue have attracted some attention, but this has yet to translate into a
market impact. We think rating agencies will be comforted by the
medium-term path of deficit reductions (and a peaking in net debt/GDP)
and that the AAA rating is therefore unlikely to be at risk.
Our
biggest disappointment with this Budget is that it passed up on an
opportunity – which was discussed in the media, pre-Budget – for a more
aggressive and innovative fiscal infrastructure initiative. The Budget
may plant some seeds for increased activity in this space, but it looks
to be a very slow burn. We note that, in contrast, the Canadian
government recently adopted a more expansive fiscal stimulus plan. This
means that the burden of adjustment, in helping support the economy
through a challenging transition (and in an uncertain world) will
continue to fall on the AUD and the cash rate. It seems likely – as we
suggested earlier today – that the RBA was well aware of this when it
surprised a (narrow) majority of economists and market participants
(including ourselves) by lowering the cash rate to 1.75%.
With
yesterday’s action and statement by the RBA, and this budget, we retain
our forecast cash rate cut, of 25bp in November. The risk at this stage
looks to be for a little more easing, rather than a little less,
particularly with the RBA appearing more concerned about longer-term
inflation trends and risks.”