What impact will the loss of the AAA rating have?

Deutsche tries its hand:

While there are clearly examples for both Australia and NZ where particular rating changes do seem to have had a material market impact, the overall implications for bond yields seem to be very limited. We aren’t surprised about this limited impact for a number of reasons. We think it very likely that the impact on ACGBs of any downgrade to Australia’s credit rating in the next few years, if it happens, will again be very small.

 Australia’s Mid-year Economic and Fiscal Outlook (MYEFO) has seen deterioration in the fiscal outlook for the Commonwealth Government. The details are discussed by our economists in a data flash published on 15 December, but the bottom line is that the cumulative budget deficit has widened by $26bn over this fiscal year and the next three. This is actually a smaller deterioration than the market expected and quite a bit less than we thought. This may suggest that further downgrades to the fiscal outlook are likely in time.

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.