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S&P sees some vulnerability in return to surplus

S&P sees some vulnerability in return to surplus

(10 May 2012 – Australia) Standard & Poor’s (S&P) has commented on the federal government’s budget, pointing out some of the risks involved in returning to surplus within 2012-13. The ratings agency said the plan to return to surplus will help Australia respond to large financial and economic shocks, but comes with risks.

Loss of credit quality in the banking sector, economic uncertainty and political factors could all threaten the government’s plan for a A$1.5 billion surplus, S&P said.

The surplus plan also will help Australia maintain its AAA rating, it says.

‘‘However, this strategy relies on an accommodative economic outlook that remains highly uncertain and the support of coalition partners for the minority government’s austerity measures,’’ S&P’s credit analyst Kyran Curry told the Herald.

‘‘If the banking sector’s credit quality deteriorated, downward pressure could intensify on the ratings on Australian banks and, in turn, the ratings on Australia.’’

She said Australia had ample fiscal and monetary policy flexibility, economic resilience, public policy stability, and a sound financial sector.

But, she cautioned, in other ways, Australia remained vulnerable.

‘‘These strengths are moderated by the vulnerabilities associated with Australia’s high reliance on external savings and commodity income to fund growth, and the risk of a disorderly housing market correction.’’
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