On Thursday, UBS provided insights into the Australian Federal Treasurer Jim Chalmers’ third budget announcement, which reported 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 is wider than the Treasury’s earlier forecasts.

The firm pointed out that the deficit projection for 2024-25 might be based on overly conservative commodity price assumptions.

UBS suggests that commodity prices are likely to remain higher than anticipated, which could lead to upward fiscal revisions in the future. This outlook is based on details found 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 points cut in the cash rate in February 2025.

Moreover, UBS anticipates that the Australian dollar will maintain its higher trading range against the US dollar, fluctuating between 0.65 and 0.675.

The budget surplus achieved this year contrasts with the anticipated deficit for the next fiscal year. This shift reflects the dynamic nature of Australia’s economic landscape and the challenges that may arise in the medium term. UBS’s analysis suggests that the budget’s implications have been thoroughly considered and have not altered their long-term economic forecasts for Australia.

UBS’s commentary provides a focused perspective on the fiscal situation in Australia, 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, taking into account the latest federal budget details.

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