Fitch: China’s economic outlook in 2024 is “neutral, debt ‎challenges increase ‎

Fitch Ratings Agency said on Wednesday that its outlook for China in 2024 is neutral, but the country will continue to face headwinds from declining external demand, challenges from the real estate sector, and local government debt instruments.

According to Reuters, Fitch expected average growth in the mainland’s GDP at 4.6% compared to just over 5% in 2023, adding that it “expects growth (in China) to be broadly stable and at levels generally higher than Her counterparts.”

Chinese government advisers told Reuters earlier that they would recommend economic growth targets for 2024 ranging between 4.5 and 5.5 percent, with most advisers preferring to target five percent growth, the same level of growth this year.

Fitch said that policy support measures, especially fiscal policy, will likely be implemented wisely to reduce the risks that pose downward pressure, but “such support may keep the fiscal deficit wide and will put pressure on increasing debt rates.”

In a rare adjustment in the middle of the fiscal year, China in October increased its 2023 budget deficit target to 3.8% of GDP, compared to 35% in the original target.

A senior Communist Party official said during a forum on Wednesday that China must target an appropriate level of budget deficit for the fiscal year 2024, after senior officials pledged to intensify monetary policy adjustments to support economic recovery next year.

Fitch said that debt issued through local government financing vehicles, which are usually investment companies that raise funds and build infrastructure projects on behalf of local governments, may continue to gradually move to the sovereign balance sheet due to pressures resulting from the slowdown in the country’s real estate market.

Last week, Moody’s credit rating agency lowered its expectations for the Chinese government’s credit rating from stable to negative, citing a slowdown in economic growth in the medium term and the risks resulting from a decline in the country’s large real estate sector.

Fitch maintained China’s credit rating at (A+) with a “stable” outlook in August.