“We expect a pick-up in fixed-asset investment in the second half, while demand normalization for goods and the weaker currency should support export growth,” said Lillian Li, vice-president and senior credit officer at Moody’s, in a release.

“But consumption will only strengthen if virus concerns wane and restrictions ease.”

Already, the downturn in China’s property sector has led to “weak construction activity, rising risk aversion toward developers, increasing default risk, declines in fiscal revenue from land sales, and shrinking demand for mortgage loans,” the report said, adding that this will also result in tighter funding conditions and weaker credit quality in the second half.

Moody’s said that China’s policy response “will focus on growth and stability,” including likely spending on infrastructure, stronger credit support, and regulatory forbearance.

“However, the scale of fiscal and monetary policy support will remain modest and its impact on growth will be only gradual, adding to pressure on privately owned enterprises and smaller companies,” it said.

“The uncertain economic outlook and weak operational environment will curb companies’ incentives to raise debt for investment,” it said. “Household debt will stay at around current levels, as consumers’ willingness to spend remains constrained.”