The tight election outcome significantly increases the chance of Australia's credit rating being downgraded and adds to the case for another interest rate cut, an economist says.
The risk of a downgrade of Australia's triple-A credit rating is high regardless of who forms government because of the uncertainty the election outcome poses for the budget, AMP Capital chief economist Shane Oliver says.
"Ratings agencies may conclude whichever way it goes we're going to end up with a worse budget outcome than was projected in the budget," Dr Oliver told AAP on Sunday.
"Then on top of that, the ratings agencies might conclude none of this is good for economic growth in Australia."
Business will not be encouraged to invest in this environment, leading to lower economic growth and weaker prospects of getting the budget under control, he said.
Former treasurer Peter Costello has also warned the tight result and a possible hung parliament could lead to a downgrade of Australia's triple-A credit rating.
Dr Oliver said the prospect of another three years of de facto minority government coming on the back of the minority Gillard/Rudd government over 2010-13 and the 2013-16 coalition government's inability to pass much of its economic and budget reform agenda through the Senate is not a good outcome for the Australian economy.
He said Labor has already indicated it will run a higher budget deficit over the next few years than the coalition proposed, meaning a deterioration in the ratings outlook, while if the coalition wins, a lot of its policies will not get through the Senate.
Dr Oliver believes the election outcome and global worries about Britain's decision to exit the European Union have added to the case for another interest rate cut, although the Reserve Bank of Australia will not move this week.
"I think they'll wait and see how the dust settles from both Brexit and the election."
Most economists expect the RBA will leave interest rates on hold for the second month in a row on Tuesday but many tip it will cut the cash rate in August on the back of persistent low inflation and the risks posed by the Brexit vote.
The RBA may, however, may signal its policy bias in terms of the direction of interest rates going forward.
