Trade deal with US could boost China’s growth above 5.7% forecast, Fitch says

The completion of a “phase one” trade deal with the United States could push China’s growth next year above current expectations, according to global credit ratings agency Fitch.

In September, Fitch projected that China’s growth would slow to 5.7 percent next year from the current 6.1 percent, if the US implemented all the tariffs it had announced for Chinese imports. However, a de-escalation of trade tensions could change growth trajectory.

“Recent progress towards reaching a US-China ‘phase one’ trade deal suggests the possible postponement or eventual removal of some existing tariffs, which could pose an upside risk to our growth outlook,” Fitch said.

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The rating agency has affirmed China’s long term foreign currency rating at A+ with a stable outlook, saying it was supported by the nation’s ‘robust’ external finances, its strong macroeconomic performance, and the size of the economy. The agency, however, warned that its rating was not higher because of “large structural vulnerabilities” in the financial sector, low per capita income and relatively weak governance standards compared with similarly rated countries.

“A reversion to the type of credit-led stimulus that would exacerbate China’s medium-term financial vulnerabilities nevertheless remains a downside risk to the sovereign rating, given Fitch’s expectations for growth to continue decelerating through 2020.”

Fitch also said that other governments’ credit ratings were expected to be affected by a global economic slowdown, as most countries are exposed to the China-US trade war.

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