Will half-price flights save Australia's S&P credit rating?

While some Australians gear up to take advantage of half-price flights, Standard & Poor's is watching Australia's credit rating.

asx share price cut represented by scissors cutting through $100 note

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While some Australians are gearing up to take advantage of the government peddling half-price flights as part of its latest stimulus, Standard & Poor's is watching Australia's credit rating.

Countries are assigned credit ratings as a reflection of economic stability. A rating downgrade can result in higher interest rates because the country's government loses access to foreign investors.

GDP forecast not AAA worthy

Today's The Australian Financial Review cites that S&P's lead Australia credit analyst Anthony Walker doesn't think Australia's current economic outlook will merit the top AAA rating.

Mr Walker predicts that 2021 will see federal and state deficits that equal approximately 14% of GDP. He doesn't believe a AAA rating will be granted if that's the case.

To conclude a country's credit rating, S&P consolidates all government debt to achieve a general estimate. The ratings agency then bases its outlook on that number.

Australia's current S&P rating is AAA with a negative outlook. The country also boasts the top rating from two other major ratings agencies, Moody's and Fitch.

Will half-price flights boost our credit rating?

Considering a country's credit rating is based on its debt, arguable offering half-price airline tickets isn't likely to address a score axing.

However, rating agencies do take into account the rate of economic growth a country demonstrates. On that note, depending on whether the initiative is effective, Australia may enjoy a spike in consumer spending as the half-price-flights party gets started. In turn, that could help appease S&P.

An editorial in today's The Australian likes the travel boost concept and thinks the government has made the right decision. It estimates that Australia's domestic tourism businesses employ 611,000 people and pump over $100 billion into the economy annually.

Foolish takeaway

Credit rating downgrades aren't the end of the world. Quite often, an entity will put in the necessary work to shape up once it learns an agency has put its rating on watch.

We won't know if the latest economic stimulus crack is effective until a few months down the road. In the meantime, hopefully, the half-price flight scheme leads to some banger domestic holidays. 

Motley Fool contributor Gretchen Kennedy has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

3 small-cap ASX healthcare shares 'with strong prospects'

Fund manager IML discusses why these 3 ASX healthcare shares are likely to rise in value.

Read more »

Magnifying glass on a rising interest rate graph.
Share Market News

Will the RBA finally cut interest rates next week?

Let's see what economists are saying about the central bank's meeting.

Read more »

A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors endured a rough Friday to close the trading week today.

Read more »

a man wearing old fashioned aviator cap and goggles emerges from the top of a cannon pointed towards the sky. He is holding a phone and taking a selfie.
Broker Notes

7 ASX All Ords shares elevated to 'strong buy' status in October

The brokers turned bullish on these ASX companies last month.

Read more »

A businessman compares the growth trajectory of property versus shares.
Share Market News

How ASX shares vs. property performed in October

The national home value rose for the 21st consecutive month while the ASX 200 dipped.

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

The worst 3 ASX 200 stocks to buy and hold in October unmasked

You would have done well to avoid these three ASX 200 stocks in October.

Read more »

A female Woolworths customer leans on her shopping trolley as she rests her chin in her hand thinking about what to buy for dinner while also wondering why the Woolworths share price isn't doing as well as Coles recently
52-Week Lows

Why is the Woolworths share price at its lowest point since 2020?

We haven't seen Woolies shares this low since COVID.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why AFT, Amcor, Corporate Travel, and Macquarie shares are falling today

These shares are ending the week in the red. But why?

Read more »