On Thursday, UBS provided information on Australian Federal Treasurer Jim Chalmers’ third budget announcement, which reported a second consecutive surplus of A$9.3 billion.
Despite this positive result, UBS pointed to a forecast deficit of A$28.3 billion for the 2024-25 financial year, higher than previous Treasury forecasts.
The firm noted that the 2024-25 deficit forecast may be based on overly conservative commodity price assumptions.
UBS suggests that commodity prices are likely to remain higher than expected, which could lead to an upward revision of the budget in the future. This forecast is based on details provided in the footnotes of the budget document.
In light of the budget details, UBS confirmed that their expectations for the Reserve Bank of Australia’s (RBA) monetary policy remain unchanged. They continue to forecast a 25 basis point interest rate cut in February 2025.
Moreover, UBS expects the Australian dollar to maintain a higher trading range against the US dollar, fluctuating between 0.65 and 0.675.
The budget surplus achieved this year contrasts with the expected deficit for the next fiscal year. This shift reflects the dynamic nature of Australia’s economic landscape and the challenges that may arise over the medium term. UBS analysis shows the budget’s impact was carefully considered and did not change the long-term economic outlook for Australia.
UBS’s commentary provides a focused view of Australia’s financial situation, without implying broader economic trends or industry-wide implications. The firm’s forecasts are based on analysis of commodity prices and expected actions by the RBA, taking into account the latest details of the federal budget.
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