Fitch revised its growth forecast upwards from 4.5 per cent to 4.8 per cent in June, driven by a rebound in exports and anticipated fiscal easing measures. The 2Q24 GDP figures were largely in line with these revised expectations, Fitch Ratings said in China Credit Brief: July 2024.

In response to deflationary pressures, Chinese authorities cut the medium-term lending facility interest rate to 2.3 per cent on July 25, a reduction from the previous 2.5 per cent. Short-term policy rates were also lowered, providing modest support for growth. However, Fitch cautions that further rate cuts may be limited due to concerns over the renminbi's exchange rate stability and the potential impact on Chinese banks' net interest margins. The outlook for the Chinese banking sector remains negative.

As part of the ongoing fiscal loosening, the recent Communist Party of China’s Third Plenum introduced reforms aimed at enhancing budgetary flexibility, particularly in balancing revenue and expenditure between central and local governments. The impact of these reforms will depend on their implementation and the willingness of local governments to utilise any new revenue-raising powers.

Fibre2Fashion News Desk (KD)