UBS on Thursday provided insight into Australian Federal Treasurer Jim Chalmers' third budget announcement, which announced a second successive surplus of A$9.3 billion.
Despite this positive result, UBS highlighted a projected deficit of A$28.3 billion for the 2024-25 financial year, a wider figure than the Treasury's previous forecast.
The company indicated that the deficit forecast for the period 2024-2025 may be based on very conservative assumptions for commodity prices.
UBS notes that commodity prices are likely to remain higher than expected, which could lead to upward fiscal revisions in the future. These forecasts are based on details contained in the footnotes of the budget document.
In light of the budget details, UBS confirmed that its outlook on Reserve Bank of Australia (RBA) monetary policy remains unchanged. They continue to expect a 25 basis point rate cut in February 2025.
Furthermore, UBS expects the Australian dollar to maintain its upper 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 the Australian economic landscape and the challenges that may arise in the medium term. UBS analysis indicates that the budget implications have been carefully considered and have not changed their long-term economic forecasts for Australia.
UBS's commentary provides a focused perspective on Australia's financial situation, without reference to broader economic trends or industry-level impacts. The company's forecasts relate to its analysis of commodity prices and expected actions from the Reserve Bank of Australia, taking into account the latest federal budget details.
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