Qld credit rating downgrade by Fitch would be unjustifiable

Ratings agency Fitch has hinted it will downgrade Queensland’s credit rating again, according to a report in today’s Courier-Mail:

QUEENSLAND’S battered credit rating looks set to take another hit with ratings agency Fitch preparing to downgrade the state’s outlook yet again.

The Courier-Mail can reveal Fitch Ratings last week met with Queensland Treasury and gave “strong indications” it planned to revise its AA+ rating down to AA within weeks.

It is understood Fitch, which first foreshadowed a possible downgrade a year ago, has again cast doubt about forecast economic growth amid the eurozone crisis and slowing Chinese markets, while also raising concerns at the state’s high debt level, already at $62 billion and set to reach $85 billion by 2014-15.

The move would knock confidence and increase borrowing costs for the fledgling Newman Government, which is attempting to bring the state’s overblown Budget back to surplus by 2014-15.

In a previous post, I’ve argued that Fitch’s outlook for the Queensland economy is bizarre, and I stand by that assessment. While there are some regional areas that are struggling to recover (Far North and Gold Coast), overall the Queensland economy’s prospects are very good. Upon reflection, last week’s mediocre March quarter National Accounts numbers for Queensland are probably not a large cause for concern. They were largely driven by a drop in business investment from an historic high level in the December quarter (as discussed in the latest OESR information brief).

The Queensland Government remains set to benefit billions in royalties from the resources boom in coming years and, even in the worst case, highly unlikely scenario where the Government struggles to meet interest payments on its debt, I’d expect the Commonwealth Government to step in and assist. It would be odd that Australia as a whole has a AAA credit rating (and has a stable outlook), but one of the major States has only AA. The Under-Treasurer should pick up the phone to Fitch and tell them to re-assess their rating or they won’t have any credibility in the future whatsoever.

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2 Responses to Qld credit rating downgrade by Fitch would be unjustifiable

  1. Pingback: Bright outlook for Qld economy | Queensland Economy Watch

  2. Pingback: Fitch downgrade of Qld credit rating is unwarranted | Queensland Economy Watch

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