Fitch Ratings revises China’s outlook to negative from stable over growth concerns
Upstox
2 min read • Updated: April 10, 2024, 6:07 PM
Summary
The outlook revision reflects increasing risks to China's public finance outlook as the country contends with more uncertain economic prospects amid a transition away from property-reliant growth to what the government views as a more sustainable growth model, Fitch said. Wide fiscal deficits and rising government debt in recent years have eroded fiscal buffers from a ratings perspective, it stated.
Fitch Ratings has revised the outlook on China's long-term foreign-currency issuer default rating (IDR) to negative from stable and affirmed the IDR at 'A+'.
The outlook revision reflects increasing risks to China's public finance outlook as the country contends with more uncertain economic prospects amid a transition away from property-reliant growth to what the government views as a more sustainable growth model, Fitch said in release.
Wide fiscal deficits and rising government debt in recent years have eroded fiscal buffers from a ratings perspective, it stated. The ratings agency pointed out that fiscal policy is increasingly likely to play an important role in supporting growth in the coming years which could keep debt on a steady upward trend. Contingent liability risks may also be rising, as lower nominal growth exacerbates challenges to managing high economy-wide leverage, it said.
Fitch has forecast the general government deficit to rise to 7.1% of GDP in 2024 from 5.8% in 2023. The 2024 deficit will be the highest since the 8.6% of GDP deficit in 2020, it stated. Deficits have been high since 2020, running roughly twice the 3.1% of GDP 2015-2019 average, Fitch said.
The ratings agency has also forecast an increase in general government debt which it projects to rise to 6.13% of GDP in 2024 from 56.1% in 2023. This is a clear deterioration from 38.5% in 2019, when debt was well below the peer median, due primarily to sustained fiscal support to counter economic pressures, it said.
According to Fitch, deflationary risks have emerged over the past year, amid weak domestic demand dynamics and temporary factors. “We do not forecast a prolonged period of deflation, with inflation of 0.7% by end-2024 and 1.3% by end-2025. Even so, risks are tilted to the downside and inflation could remain lower than we forecast, further weighing on the nominal GDP growth outlook,” it said.
The Shanghai Composite index closed 0.7% lower on Wednesday.