Inflation expected falling to central bank’s 2%-3% target range by end of 2025, from 3.5% in 3Q24.

Fitch Ratings said it affirmed Australia’s long-term foreign currency issuer default rating at ‘AAA’ with a stable outlook.

The rating agency said Australia’s rating is supported by the country’s high income per capita, strong medium-term GDP growth outlook, strong institutions and an effective policy framework.

Those factors, however, are balanced against fiscal metrics that are expected to weaken modestly in the next two years.

Fitch said it forecasts GDP growth slowing to 1.1% this year, from 2% last year, but expects growth to come in at 1.7% in 2025 and 2.1% 2026.

“Consumption is likely to remain subdued as households contend with high interest rates, but an eventual recovery should be supported by tax cuts, probable monetary easing in 2025 and a healthy labour market, which should buoy household balance sheets,” it said in a statement.

The ratings agency expects the country’s central bank, the Reserve Bank of Australia, to begin interest rate cuts in February 2025, with the policy rate reaching 3.50% by the end of 2025, from 4.35% rate that has been held steady since November 2023.

Inflation is expected falling to the central bank’s 2%-3% target range by the end of next year, from 3.5% in the third quarter of this year.