Fitch Cuts China Outlook to Negative, Citing Growth Risks

Fitch Ratings said on Tuesday that it had revised its outlook on China’s sovereign credit rating to negative.

The ratings agency blamed its move on risks to the country’s public finances as the economy faces increasing uncertainty in its shift to new growth models.

Fitch forecast the general government deficit would rise to 7.1% of gross domestic product (GDP) in 2024 from 5.8% in 2023 – the highest since a reading of 8.6% in 2020, when Beijing’s strict Covid curbs weighed heavily on the world’s No-2 economy.

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While it lowered its outlook, indicating a downgrade is possible over the medium term, the agency affirmed China’s issuer default rating (IDR) at ‘A+’.

Fitch forecast China’s economic growth would slow to 4.5% in 2024 from 5.2% last year, in contrast to Citi and the International Monetary Fund, which both revised up their China forecasts.

China’s factory output and retail sales topped forecasts in January-February, joining better-than-expected exports and consumer inflation indicators, providing an early boost to Beijing’s hopes of reaching what analysts have described as an ambitious 5.0% gross domestic product growth target for 2024.

“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 said.

“Fitch believes 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.”

China’s finance ministry said following the announcement it regretted Fitch’s ratings decision.

Moody’s in December slapped a downgrade warning on China’s credit rating, citing the costs to bail out local governments and state firms and control its property crisis.