Anna 
On Thursday, UBS provided insights into Australian Federal Treasurer Jim Chalmers’ third budget announcement, which revealed a second consecutive surplus of AUD 9.3 billion. Despite this positive outcome, UBS highlighted a projected deficit of AUD 28.3 billion for the fiscal year 2024-25, a figure that exceeds earlier Treasury forecasts.
UBS attributes the larger projected deficit to conservative commodity price assumptions within the budget. The firm suggests that commodity prices are likely to remain higher than anticipated, which could lead to upward fiscal revisions in the future. This outlook is detailed in the footnotes of the budget document, indicating potential adjustments based on commodity market trends.
Despite the budget’s implications, UBS maintains its forecast for the Reserve Bank of Australia’s (RBA) monetary policy. The firm continues to predict a 25 basis points cut in the cash rate in February 2025. Additionally, UBS anticipates that the Australian dollar will maintain its higher trading range against the US dollar, fluctuating between 0.65 and 0.675.
The current year’s budget surplus contrasts with the anticipated deficit for the next fiscal year, reflecting the dynamic nature of Australia’s economic landscape and potential challenges in the medium term. UBS’s analysis suggests that while the budget’s projections are conservative, there is room for upward adjustments if commodity prices perform better than expected.
UBS’s commentary provides a focused perspective on Australia’s fiscal situation, without implying broader economic trends or industry-wide impacts. The firm’s projections are specific to their analysis of commodity prices and the anticipated actions of the RBA, considering the latest federal budget details.
In conclusion, UBS’s insights into the Australian budget highlight a cautious but optimistic outlook. The projected deficit for 2024-25, while larger than earlier forecasts, may be mitigated by higher-than-expected commodity prices. Meanwhile, the RBA’s anticipated rate cut and the stable trading range of the Australian dollar reflect a nuanced understanding of Australia’s economic prospects.
