Fitch downgrades China’s credit rating outlook to negative – Kommersant

The international rating agency Fitch has affirmed China’s long-term foreign currency issuer default rating (IDR) at ‘A+’. However, the agency changed the outlook from “stable” to “negative.” The Ministry of Finance of the People’s Republic of China expressed regret over Fitch’s decision.

IN press release The agency said the outlook revision comes amid growing risks to China’s public finances amid the country’s “more uncertain economic outlook.” “Large fiscal deficits and rising public debt in recent years have eroded fiscal buffers… Fitch believes fiscal policy will likely play an important role in supporting economic growth in the coming years, which could support the sustained upward trend in public debt,” – experts say.

Fitch explained that China’s ‘A+’ IDR is “supported by its large and diversified economy, robust GDP growth prospects relative to peers, important role in global trade, resilient external finances,” and the yuan’s status as a reserve currency. At the same time, the agency expects that the Chinese government budget deficit will increase from 5.8% in 2023 to 7.1% of GDP in 2024. That would be the highest figure since 8.6% in 2020, when the country’s economy was hit by strict restrictions amid the coronavirus pandemic.

Fitch forecasts China’s economic growth to slow from 5.2% in 2023 to 4.5% in 2024. Analysts cite the reason for the continued weakness of the real estate sector and a decline in household consumption, caused, among other things, by “somewhat sluggish income growth.” Deflation also remains among the problems – as the agency explains, deflationary risks arose in 2023 against the background of weak dynamics of domestic demand and a number of temporary factors. “Despite this, risks are shifted to the downside, and inflation may remain lower than we forecast, which will further affect the GDP growth forecast,” the press release clarifies.

China’s Ministry of Finance responded by saying that Fitch’s assessment methodology’s index system “cannot effectively and insightfully capture” the positive role of fiscal policy in promoting China’s economic growth. “It is a pity that Fitch has downgraded its outlook on China’s sovereign credit rating. We spoke with the Fitch Ratings team early on, and the report partly reflected China’s view… Over the long term, maintaining moderate deficits and efficient use of debt funds will help expand domestic demand, support economic growth and, ultimately, maintain healthy sovereign credit. The Chinese government has always insisted on taking into account the multiple goals of supporting economic development, preventing financial risks and achieving financial stability,” the statement reads. press release departments.

At the end of 2023, China’s GDP increased by 5.2% in annual terms, which was lower than the official forecast, set at about 5%. The GDP amounted to 126.058 trillion yuan ($17.6 trillion). In March, Chinese Prime Minister Li Qiang at the National People’s Congress designated The country’s official GDP growth target for 2024 is 5%. The Prime Minister’s report showed that reforms to solve the systemic problems of the PRC economy, including in the real estate market, are not yet expected, and most of the announced initiatives will be focused around China achieving its goals of technological sovereignty.

About the indicators of the PRC economy – in the material “Kommersant” “Chinese New Year was a success for factories, but not for stores”.

Laura Keffer