Even without new explicit fiscal stimulus, China retains room to accelerate public spending in the fourth quarter (Q4) this year under the March 2024 budget and downside risks to Fitch’s 4.8-per cent growth forecast for 2024 are limited, the rating agency said in a release.
China’s latest fiscal announcements seem aimed at addressing medium-term structural impediments to economic growth from strained local government finances, but are unlikely to immediately boost or offset deflationary risk, Fitch Ratings said.
It expects a budget deficit of 7.1 per cent of GDP this year.
It believes fiscal stimulus will remain incremental and responsive to downside risks.
China’s fiscal stance turned expansionary in Q3 2024, after remaining neutral for most of the year amid slow spending. Fitch still expects a budget deficit of 7.1 per cent of gross domestic product (GDP) this year—up from 5.8 per cent last year.
Fitch Ratings believes fiscal stimulus will remain incremental and responsive to downside risks, including the likelihood of rising trade tensions following the US election, providing a floor to growth, which it still forecasts to moderate to 4.5 per cent in 2025.
The rating agency expects the fiscal deficit to remain elevated over the medium term, potentially exceeding the levels it anticipated during its April 2024 review, when it revised the outlook on China’s ‘A+’ rating to negative.
This will keep government debt on a rising trend and could further pressure China’s sovereign rating, depending on how much fiscal and monetary policy stimulus accelerates underlying demand and eases deflationary pressure.
Fibre2Fashion News Desk (DS)
