Fitch downgrades outlook on China to negative; world's second-largest economy in crisis?

Fitch China outlook: Rating agency Fitch has revised its outlook on China's sovereign credit rating to negative, highlighting concerns about risks to public finances amidst increasing uncertainty in the country's transition to new growth models.

The forecast from Fitch indicates that the general government deficit is expected to rise to 7.1 per cent of gross domestic product (GDP) in 2024, up from 5.8 per cent in 2023. This projection marks the highest deficit since 2020, when Beijing's stringent COVID-19 restrictions significantly impacted the world's second-largest economy.

Despite the downward revision in outlook, signalling a potential downgrade over the medium term, Fitch maintained China's Issuer Default Rating (IDR) at 'A+'.

Fitch also predicted a slowdown in China's economic growth to 4.5 per cent in 2024 from 5.2 per cent recorded last year. This projection contrasts with forecasts from Citi and the International Monetary Fund (IMF), both of which revised their forecasts upwards for China.

China's economic indicators showed mixed performances in January-February, with factory output and retail sales exceeding expectations, along with better-than-anticipated exports and consumer inflation indicators. These early signs provided a boost to Beijing's ambitions of achieving a 5.0 per cent gross domestic product growth target for 2024, as described by analysts.

"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," stated Fitch.

In response to the announcement, China's finance ministry expressed regret over Fitch's ratings decision.

This move by Fitch follows a similar warning issued by Moody's in December, which cited concerns about the costs associated with bailing out local governments and state firms, as well as the efforts to manage the country's property crisis.

(With Reuters inputs.)