Moody's lowers China's credit rating outlook to negative: How will this affect the global economy?

Moody's lowers China's credit rating outlook to negative: How will this affect the global economy?

According to a report by www.zeit.de, the rating agency Moody's has lowered the outlook for China's creditworthiness due to the weakening economy and the high level of debt in the People's Republic. The outlook was downgraded to negative from stable, although the credit rating remains at A1. However, this suggests that the grade is at risk of being downgraded.

The recovery of the Chinese economy after the end of the strict Corona requirements is progressing slowly. In addition, the country's real estate sector is in crisis, consumer behavior is weak and so is foreign demand for Chinese products. Last year the economy grew by only three percent. This year the government is aiming for around five percent, but it will be difficult to achieve this target.

Moody’s decision reflects growing signs of federal financial support for local governments and state-owned corporations. The rating agency expects lower growth and problems in the real estate sector in the medium term, even though it was long considered a pillar of the Chinese economy. The Chinese Ministry of Finance reacted “disappointed” to the decision and emphasized that the economy has steadily recovered since the beginning of the year despite a complex and difficult global situation. From the Ministry of Finance’s point of view, the rating agency’s concerns are “unnecessary”.

Overall, these developments are likely to lead to increased risks for investments in China, particularly in the real estate sector. In addition, international investors could become more cautious, which could have a negative impact on the Chinese financial market. Concerns about China's creditworthiness could lead to higher interest rates on Chinese government bonds, which would increase the country's cost of capital. This, in turn, could impact the Chinese government's ability to invest in infrastructure projects and other economic measures.

China's weak credit record could also lead to more international investors moving to other emerging markets in Asia or globally, which could increase competitive pressure on China. It is clear that these developments create significant uncertainty in the Chinese financial market, which could also impact global markets.