On Thursday, UBS provided insight into Australian Federal Treasurer Jim Chalmers’ third budget announcement, which reported a second consecutive surplus of AUD 9.3 billion.
Despite this positive result, UBS highlighted an expected deficit of AUD 28.3 billion for the 2024-2025 financial year, a figure larger than the Treasury’s previous forecasts.
The company pointed out that the 2024-2025 deficit projection could be based on overly conservative assumptions about commodity prices.
UBS suggests that commodity prices are likely to remain higher than expected, which could lead to upward budget revisions in the future. These forecasts are based on details in the footnotes of the budget document.
In light of the budget details, UBS confirmed that their expectations for monetary policy from the Reserve Bank of Australia (RBA) remain unchanged. They continue to forecast a 25 basis point cut in cash rates by February 2025.
Furthermore, UBS expects the Australian dollar to maintain its higher trading margin against the US dollar, fluctuating between 0.65 and 0.675.
The budget surplus achieved this year is in stark contrast to the expected deficit for the next budget year. This shift reflects the dynamic nature of Australia’s economic landscape and the challenges that may arise in the medium term. UBS’s analysis shows that the budget’s implications have been thoroughly considered and have not changed Australia’s long-term economic forecasts.
The UBS commentary provides a focused perspective on Australia’s fiscal position, without implying broader economic trends or sector-wide implications. The company’s projections are specific to their analysis of commodity prices and expected actions from the RBA, taking into account the latest federal budget details.
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