Australia’s coveted ‘AAA’ credit rating came under threat yesterday as the country’s parliament returned to pass an emergency A$130bn ($80bn) stimulus package to help cushion the economic blow from the coronavirus pandemic.
Australia’s government and central bank have so far pledged A$320bn in financial support as the coronavirus pandemic shuts companies and leaves many unemployed.
“The Covid-19 outbreak has dealt Australia a severe economic and fiscal shock,” S&P said as it lowered the outlook on the country’s ‘AAA’ sovereign rating to “negative” from “stable”.
“We expect the Australian economy to plunge into recession for the first time in almost 30 years, causing a substantial deterioration of the government’s fiscal headroom at the ‘AAA’ rating level.” A triple-A credit rating is given to only a select group of countries with the strongest finances in the world. The rating means a country can easily meet its financial commitments, has the lowest risk of default and can borrow money more cheaply. S&P’s decision came as a pared back version of Australia’s parliament votes on the government’s third tranche of fiscal measures yesterday.
Fewer than normal lawmakers were present for the one-day sitting to minimise the risk of the virus spreading.
“When Australian lives and livelihoods are threatened, when they are under attack, our nation’s sovereignty is put at risk, and we must respond,” Prime Minister Scott Morrison said of the special sitting. Citing the threat of a prolonged economic downturn, Morrison’s government has promised to spend A$130bn over the next six months to subsidise the wages of 6mn Australians.
Morrison had earlier promised one-off payments to small and medium-sized businesses and the opposition Labour Party has said it will back the stimulus packages.
But most economists predict the worst recession in Australia’s history regardless, with the unemployment rate expected to double to near 10%.
The Reserve Bank of Australia on Tuesday predicted a “very large” economic contraction in the current quarter as restrictions to slow the spread of coronavirus bite.
Australia has for weeks curtailed people’s movements, limited social gatherings and forced many businesses in the hospitality, retail, transport and education sectors to shut.
Those businesses that remain open face falling sales and increasing operational restrictions.
The restrictions have helped slow the spread of coronavirus in Australia.
The number of new cases has grown by around 2% in recent days, well below the 25% daily growth that was being recorded last month.
Australia now has just shy of 6,000 cases, with 50 deaths.
Although the spread of the virus has slowed, authorities have warned against complacency.
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