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Investing.com -- Fitch Ratings has affirmed Australia’s Long-Term Foreign-Currency Issuer Default Rating at ’AAA’ with a Stable Outlook, citing the country’s strong institutions and resilient economic growth prospects.
The rating agency expects Australia’s GDP growth to accelerate to 1.8% in 2025, 2.1% in 2026, and 2.4% in 2027, following slower growth of 1.1% in 2024. Consumption is anticipated to drive the recovery, supported by a strong labor market and improving real household incomes.
Fitch estimates Australia’s potential growth at 2.2%, higher than most advanced economies and ’AAA’ rated peers, underpinned by steady net inward migration and a modest productivity recovery.
The general government fiscal deficit is forecast to narrow slightly to 2.7% of GDP in the fiscal year ending June 2026, from an estimated 2.9% for FY25. The federal government tipped back into deficit in FY25 following two years of surpluses.
Government debt is expected to peak at 50.9% of GDP in FY26, up from an estimated 50.0% for FY25, before declining to 50.2% by FY30. This level is higher than the 39.7% ’AAA’ median.
Fitch forecasts one additional 25bp policy rate cut in 2025 and another in the first half of 2026 to a terminal rate of 3.1%. The Reserve Bank of Australia has already eased its policy rate by 75bp since beginning its easing cycle in February 2025.
Despite high household debt at 181.8% of disposable income, financial stability risks remain limited due to solid household financial buffers and labor market strength. Banks are well-positioned with strong capital positions and resilient profitability.
External finances remain a weakness in Australia’s credit profile, with a forecast current account deficit of around 2.0% of GDP over the next few years and a high net external debt position estimated at just under 50% of GDP in 2025.
Factors that could lead to a negative rating action include a sustained upward trend in government debt, severe economic distress affecting household debt-servicing ability, or significant weakening of external finances.
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