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Forex Flash: Australia budget still strong by global standards - RBS

FXstreet.com (Barcelona) - The Aussie Dollar has fallen just over 350 pips since early last week, but although the recent budget deficit came in larger than expected, some analysts are pointing out its still impressive on a global basis

According to analysts at RBS, “The Australian Government outlined its budget projections yesterday. It has copped a lot of political heat domestically over recent months for not delivering a promised budget surplus this year, and the announcements yesterday were a bigger than expected deficit of $A19.4bn in the current fiscal year ended June 2013. However, this still represented a significant fall from a $A43.5bn deficit in 2011/12 and represents only 1.3% of GDP, very narrow by global comparison. The government forecast a gradual return to surplus in 2015/16, narrowing a little further next fiscal year to an $18bn deficit (-1.1% of GDP).”

They went on to add, “The forecasts are based on GDP growth next fiscal year of 2.75%, rising to a trend rate of 3% beyond that. This is more or less in line with the RBA growth forecast. It sees unemployment rising from 5.5% to 5.75% for the next two fiscal years, before falling back to 5.0% in later years. These forecasts are a reasonable basis on which to budget, although the Australian economy is facing growth challenges in the next few years as the mining investment boom winds down.”

On a final note they commented, “For a triple-A rated sovereign, one of only eight, it is not surprising that 80% of this relatively small amount of government securities is held offshore, presumably in other countries FX reserves. After the budget both Moody's and S&P rating agencies said Australia's triple-A rating with a stable outlook remained.”

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