A downgrade of Australia's triple A credit rating downgrade could lead to higher mortgage interest rates, but also trigger Reserve Bank rate cuts.
Standard & Poor's has lowered its outlook on the country's credit rating from stable to negative, meaning there is a one-in-three chance of a downgrade within two years if the run of budget deficits looks set to continue.
"The negative outlook on Australia reflects our view that prospects for improvements in budgetary performance have weakened following the recent election outcome," S&P said.
AMP Capital chief economist Shane Oliver warned a minority coalition government backed by crossbenchers or a Labor-Green government would likely result in increased public spending.
"Unfortunately all the scenarios leading to a new government point in that direction," he said.
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"So a downgrade would not surprise me."
JP Morgan economist Ben Jarman said a downgrade would likely trigger more rate cuts from the Reserve Bank because higher risk premiums could increase bank funding and mortgage pricing.
S&P also lowered its outlook on the big four banks from stable to negative, as Australia's capacity to support the lenders could potentially be reduced.
"Officials have always made it explicit that they target final borrowing rates, so any upward push in funding costs bias the cash rate lower," he said.
"We expect the cash rate to reach one per cent by mid-next year."
But National Australia Bank chief markets economist Ian Colhourn said S&P's warning may prove to be the jolt needed to spur action on budget deficits.
"This negative outlook might make the incoming government's task of managing both houses of parliament and the budget process somewhat easier, as no party will like to be seen as responsible for causing a credit rating downgrade," he said.
