Extent of Chinese consumption recovery's durability unclear: Fitch

However, it believes the extent of the consumption recovery’s durability is unclear without an improvement in consumer confidence. It expects consumption to slow in the second half (H2) this year, as indicated by July’s moderating retail sales.

Consumer spending growth picked up in H1 2025 on the stimulus from a consumer goods trade-in programme. This, along with broader fiscal stimulus and robust exports, is likely to keep 2025 gross domestic product (GDP) growth in China at 4.5-5 per cent, above Fitch’s 4.2-per cent June forecast.

Since the pandemic, subdued household confidence has led to cyclical weakness in consumption, which Fitch Ratings believes is likely to persist. Low confidence reflects uncertainty over income growth, employment prospects and negative wealth effects from the property correction.

The organisation does not expect significant additional fiscal stimulus in H2 2025. Fiscal settings are expansionary in 2025 and strong H1 GDP growth has brought the government closer to achieving its growth objective. Therefore, it is sticking with its 8.4 per cent of GDP deficit forecast.

Enhancing social safety nets will require additional fiscal spending, potentially adding to medium-term fiscal pressures amid already elevated deficits and declining fiscal revenue.

However, there is headroom at the current ‘A’/Stable rating, after its downgrade from ‘A+’/Negative in April 2025, to manage the medium-term path of gradual consolidation and still rising debt, Fitch added.

ALCHEMPro News Desk (DS)