Ratings agency Moody's has added to concerns raised last week by Standard & Poor's that "little agreement" will be reached in the new federal Parliament about deficit reduction.
The Coalition may be confident it can form a government, but a potential deadlock in the Senate could be a "credit negative" for Australia, said Moody's Investors Service vice-president Marie Diron.
Prime Minister Malcolm Turnbull wrote to the Governor-General yesterday, informing him he would be able to form a government, but it remains in doubt whether the Coalition will have a majority in the lower house.
Nevertheless, the government has secured the support of independents Cathy McGowan and Bob Katter when it comes to supply and confidence. Independent Andrew Wilkie has promised not to deny supply and confidence.
But the Senate is another matter, where the balance of power is likely to be held by a swathe of crossbenchers.
The prospect of a "split Senate" is a concern for Moody's, said Ms Diron.
"Indications that under a Coalition government, with a split Senate, little agreement can be reached on fiscal consolidation and macroeconomic policy measures would be credit negative," Ms Diron said.
Moody's warning of a "credit negative" follows S&P Global Ratings' announcement that it had lowered Australia's sovereign credit outlook from 'stable' to 'negative'.
"Moody’s expects fiscal consolidation to remain a key policy objective of the government. Economic momentum is likely to remain robust," Ms Diron said.
"The positive effects of the weaker Australian dollar on services exports and the resilience of private consumption in an environment of stable unemployment and low interest rates will support GDP growth.
"Looking ahead, trends in Australia’s credit profile will be determined by whether fiscal objectives are effectively implemented, whether external financing conditions remain favourable and how evolution of the housing market affects domestic growth and financial conditions," Ms Diron said.
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