Moody’s sees strong bond issuance in renewables as Aussie economy leads the pack

Moody’s is tipping the Australian economy will outperform other advanced economies.

Moody’s expects Australia’s economy to grow the fastest of all G20 nations in 2025, providing a firm underpinning for US dollar bond issuance, while flagging that cost of living pressures will take some of the shine off.

The ratings agency also says the transition to net zero should provide investment opportunities “if the execution risks are managed well’’, and says broadly that the nation’s strong, immigration-led population growth and deep pools of capital stemming from the superannuation sector provide ample support.

“Australia’s well-capitalised banks, the largest issuers of Australian US-dollar bonds, are aptly positioned to tackle a weakening in asset quality as borrowers remain under pressure from elevated interest rates and high, although declining, inflation,’’ Moody’s says.

“Corporate issuers benefit from the economy’s robust consumption and natural resource exports, while at the same time, the stretched household budgets may pose some challenges to corporates that are leveraged to the consumer.’’

Across financial institutions, corporate and infrastructure there were $US223bn in bonds outstanding, 95 per cent issued by investment-grade entities, led by the big four banks and Macquarie.

Moody’s said Australia entered the pandemic in a position of strength, and was forecasting that the nation would top GDP growth rates across the G20 next year with a figure of 2.3 per cent, just edging out South Korea.

While loan losses at the big four banks are expected to rise, the effect is expected to be modest, coming off a “very low” base.

“Loan losses will rise, but the increase is unlikely to be significant given the rising house prices, along with relatively low average loan-to-value ratios for mortgages,’’ Moody’s says.

“National house prices in Australia have continued to grow strongly, rising 8 per cent in year-to-date June 2024.”