FX.co ★ Moody’s and Fitch cut China’s credit outlook to negative

Fitch has recently revised China's credit outlook to "negative." This adjustment reflects growing budgetary risks amidst the transformation of the country's economic model. Such developments prompt a critical juncture for China: the path could lead to new heights or potential setbacks. In a parallel move, Moody's had already adjusted its forecast in December 2023, indicating concerns similar to those expressed by Fitch. According to Fitch, the fiscal deficit in China is expected to rise to 7.1% of GDP in 2024, up from 5.8% in 2023. To put this into perspective, the deficit peaked at 8.6% in 2022 during the stringent COVID-19 lockdowns. Economic growth in China is also expected to slow to 4.5% next year, while public debt is anticipated to increase to 61.3% of GDP. Fitch states that this revision "reflects rising budgetary risks," suggesting challenging times ahead for the Chinese economy. In response to Fitch's revision, the Chinese Ministry of Finance expressed "deep regret," a sentiment that underscores the gravity of the situation. Meanwhile, Moody’s cautioned that this additional burden could exert fiscal pressure on the government. This series of evaluations by major credit rating agencies indicates considerable concern regarding China's economic outlook, reflecting concerns over its fiscal health and future economic stability.