Thursday, 20 June 2024
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ChinaEconomy

Fitch lowers its assessment of China’s prospects

  • Fitch lowered China’s sovereign credit rating to negative, citing risks to public finances.
  • China’s overall government deficit would increase from 5.8% in 2023 to 7.1% of GDP in 2024.
  • Fitch predicted China’s economic growth would fall to 4.5% in 2024 from 5.2% last year.

With the economy facing growing uncertainty in its transition to new growth models, Fitch lowered China’s sovereign credit rating to negative, citing risks to public finances.

This is in line with a similar decision made by Moody’s in December and coincides with Beijing’s increased efforts to use fiscal and monetary support to boost the world’s second-largest economy‘s weak post-COVID recovery. The agency projects that China’s overall government deficit would increase from 5.8% in 2023 to 7.1% of GDP in 2024, the highest level since 8.6% in 2020.

China’s Credit Ratings

Fitch validated China‘s issuer default rating at ‘A+’ but downgraded its outlook from “stable” to “negative,” suggesting a potential downgrading in the medium run. China is rated A+ by S&P, the other major global rating agency, which is the same as Moody’s A1.

Although the International Monetary Fund anticipates 4.6% GDP growth this year, Fitch predicted China’s economic growth would fall to 4.5% in 2024 from 5.2% last year.

In January and February, factory output and retail sales exceeded expectations, which was preceded by better-than-expected exports and consumer inflation readings. An aggressive GDP growth objective of roughly 5.0% for 2024 has been outlined by analysts.

China’s public finance forecast is facing growing risks as it shifts from property-reliant growth to a more sustainable growth model, and the country also faces increasingly uncertain economic prospects.

This is reflected in the outlook revision. Rating agencies have seen a reduction in fiscal buffers due to large fiscal deficits and growing public debt, and there may be an increase in contingent liability risks. In addition to issuing 1 trillion yuan ($138.30 billion) in exceptionally long-term government notes, China intends to run a budget deficit equal to 3.5% of GDP.

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