Fitch Ratings has affirmed China’s long-term foreign-currency issuer default rating at ‘A+’ with a stable outlook, supported by the country’s robust external finances and track record of strong macroeconomic performance.
According to Fitch, the ratings are primarily constrained by large structural vulnerabilities in the financial sector, relatively low per capita income, and weaker governance metrics than those of ‘A’ peers.
“After a severe blow to economic activity during the first quarter of this year from the imposition of stringent social distancing measures to contain the spread of the coronavirus, China’s economy is now staging a remarkable recovery. Real GDP rose by 3.2 percent [year-on-year] during 2Q20, above Fitch’s prior expectations, and up from a 6.8 percent contraction in 1Q20.”
The agency added that while the economic recovery remains uneven, with consumer-driven activity lagging behind the industrial sector, monthly data outturns continue to gain pace amid low domestic infection rates.
Fitch forecasts real GDP growth of 2.7 percent in 2020 (previously 1.2 percent), among the highest across Fitch-rated sovereigns this year, though well below China’s five-year historical trend of 6.7 percent. The risk of further coronavirus outbreaks cannot be ruled out, it said, “but the authorities’ recent success in rapidly containing a spike in infections in Beijing points to a growing capacity to manage outbreaks locally, without resorting to the kind of large-scale lockdown that would be highly damaging to economic activity.”
Fitch’s baseline assumes growth will temporarily accelerate to 7.5 percent in 2021, before returning to the estimated trend rate of 5.5 percent in 2022. According to the credit agency, fiscal policy has become “highly expansionary” to support the economy through the pandemic. The official budget deficit target was raised to 3.6 percent of GDP at this year’s National People’s Congress, up from 2.8 percent in 2019. “In addition, significant fiscal resources are being mobilized through the issuance of special purpose bonds to fund infrastructure investment and public health initiatives,” said Fitch.
For more stories on economy & finance visit RT’s business section