Moody's cuts China’s credit outlook to negative, expects annual GDP growth at 4% in 2024

Moody's on Tuesday cut its outlook on China's government credit ratings to negative from stable, on the back of lower medium-term economic growth and rising debt in the world's second-largest economy.

The ratings agency affirmed China's A1 long-term local and foreign-currency issuer ratings and said it expects the country's annual GDP growth to be 4.0% in 2024 and 2025, Reuters reported.

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The change to a negative outlook reflected rising evidence that authorities will have to provide financial support for debt-laden local governments and state firms, posing broad risks to China's fiscal, economic and institutional strength, Moody's said in a note.

“The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector," Moody's said.

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Moody's expects China's annual economic growth to slow to an average 3.8% from 2026 to 2030.

According to a Reuters report, China's Finance Ministry said it was disappointed by Moody's downgrade, adding that the economy will maintain its rebound and positive trend. It also said property and local government risks are controllable.

"Moody's concerns about China's economic growth prospects, fiscal sustainability and other aspects are unnecessary," the ministry said.

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The world's second-largest economy has been grappling with issues like the housing market crisis and local government debt risks amid slower global and domestic economic growth. Chinese government had earlier announced a slew of policy stimulus, but the benefits of those were limited.

Local government debt reached 92 trillion yuan ($12.6 trillion), or 76% of China's economic output in 2022, up from 62.2% in 2019, according to the latest data from the International Monetary Fund (IMF).

(With inputs from Reuters)