SYDNEY, Jan. 11 (Xinhua) -- A potential downturn in commodity prices is identified as the biggest potential risk to Australia's economy in 2017, the Commonwealth Bank of Australia (CBA) said Wednesday.
CBA's Chief Economist Michael Blythe released a report on Wednesday, outlining the major issues that are currently facing markets in Australia, including those posed by the Jan. 20 inauguration of U.S. President-elect Donald Trump.
According to Blythe, the biggest possible peril for the Australian economy in 2017 would be a renewed slump in commodity prices, which if realized, would have a potentially disastrous impact across all sectors within the economy.
In periods of weak national income from commodity exports, consumer spending is negatively impacted from both business and government, trying to cut down their own spending.
"On the business side, if you want to influence profitability then it encourages a focus on the costs side, so that is negative for labor hiring and capital spending," Blythe said, while governments would reign in fiscal stimulus.
"So, it affects all parts of the Australian economy which is why it is probably the biggest risk should we sort of backing into this weak flat falling income dynamic that we have been in for the last few years."
Speculation persisted the sovereign ratings houses will downgrade Australia's credit rating by Australia's next budget, due in May.
Yet with the number of sovereign nations holding onto a triple-A rating falling from 19 in 2010, to only 12 in 2016, Blythe suggested that even if the credit rating was to fall, there would be no real negative outcomes for the Australian economy in general.
"Certainly you would expect to see some volatility on financial markets, but we think that would just be a short term reaction," Blythe said.