Credit rating downgrade wouldn’t be a big deal

S&P lowered the Australian credit rating outlook to negative this week and given the likely deterioration in the fiscal balance, Australia could lose its AAA rating before long. But we don’t think that would cause an increase in borrowing costs so the government should not be too worried. Meanwhile, given the reduction in new coronavirus cases in Australia, there have been reports that social distancing restrictions and lockdowns could be lifted sooner than we had anticipated. That would be an upside risk to our very downbeat forecasts.