March 28, 2014 / 8:02 AM / 4 years ago

UPDATE 1-S&P affirms ratings on Austria, outlook stable

* S&P cites stable governance, pro-growth policy

* Expects government to focus on fiscal consolidation (Adds government comment, background)

SYDNEY/VIENNA, March 28 (Reuters) - Standard & Poor’s on Friday affirmed its AA plus/A-1 plus long- and short-term foreign and local currency sovereign credit ratings on Austria, saying the outlook was stable.

The affirmation reflects Austria’s stable governance and predictable economic policies supporting growth, the agency said.

“The stable outlook factors in our expectations that Austria’s economy will benefit from the improving international economic environment, the new government will adhere to a strict consolidation path, and Austrian banks will focus on their moderate capital levels,” S&P said.

In Vienna, the government welcomed the decision as confirmation of its policies.

“S&P expressly hailed the government’s progress on consolidating the budget. Important interim goals on the way towards a structurally balanced budget for 2016 have already been achieved,” Finance Minister Michael Spindelegger said.

Ratings agency Moody’s last month revised its outlook on Austria’s AAA-rated government bonds to “stable” from “negative”, citing declining risks that the country will need to keep helping other euro zone countries.

Moody’s also cited stabilisation of the country’s economy and reduced risks from resolving issues related to distressed nationalised bank Hypo Alpe Adria Bank.

The government aims to wind the lender down via a “bad bank” that will boost state debt and deficits this year.

S&P highlighted the short-term impact of this in its statement on Friday:

“Owing to the creation of a bank wind-down unit and the reclassification of the general government sector this year, net general government debt could jump to some 80 percent of GDP in 2014, compared with our previous expectation of 70.5 percent that excluded these two one-off items, and then fall thereafter,” the agency said.

Fitch Ratings affirmed Austria’s credit ratings at AAA with a stable outlook last month, saying the government’s favourable budgetary position meant it could handle the cost of restructuring Hypo Alpe Adria. (Reporting by Wayne Cole and Michael Shields; Editing by Toby Chopra)

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