According to Reuters, international credit rating agency Fitch Ratings has downgraded China’s sovereign debt outlook from stable to negative due the ongoing real estate crisis and the economic uncertainties linked to the country’s shift towards a new growth model.
“Fitch’s outlook revision reflects the more challenging situation in China’s public finance regarding the double whammy of decelerating growth and more debt,” Gary Ng, senior economist for Asia-Pacific at Natixis, stated.
Fitch expects that central and local government debt in China will increase to 61.3 percent of GDP in 2024, from 56.1 percent in 2023, and that the country’s general government deficit in 2024 will rise to 7.1 percent from 5.8 percent in 2023.
This outlook change indicates that a rating downgrade is possible in the medium term, although for now China’s issuer default rating remains A+. The same rate is also assigned by S&P for China, which also equals to Moody’s A1.
The agency also believes that China’s economic growth will slow to 4.5 percent in 2024, against 5.2 percent last year, whereas the IMF expects China’s GDP to grow by 4.6 percent this year.
“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 added.