S&P becomes second to downgrade Finland outlook to 'negative'

Friday 11 April 2014 09.12
Finland's credit rating outlook downgraded by S&P
Finland's credit rating outlook downgraded by S&P

Standard and Poor's has downgraded Finland's outlook to "negative," putting another crack in the credit image of one of the few countries to hold the top-notch "AAA" rating.

S&P became the second ratings agency to downgrade the outlook of the Nordic euro zone member, following a similar move by Fitch last October.

Prior to that, Finland was the only euro zone country to hold both the prized "triple A" rating and a stable outlook from all three ratings agencies - S&P, Fitch and Moody's.

Finland has long prided itself on the extremely strict fiscal management that has allowed it to avoid ever breaking EU fiscal rules.

But S&P said a persistent sub-par growth rate was reflective of "deep structural demographic and economic imbalances that hamper the government's efforts to achieve fiscal consolidation."

"The outlook revision reflects our view of Finland's protracted economic stagnation, with average GDP per capita growth over the past decade of close to zero," it said.

It said it now expected gross domestic product in 2013 to have contracted by 1.4%, rather than the 0.5% it was forecasting during its last Finland review in October.

Growth assumptions for 2014-2016 have been lowered to 1%, from the previous estimate of 1.4%. 

S&P analysts cited cost pressures on Finland's vital wood and paper industry and the decline of mobile telecom pioneer Nokia as contributing factors.

"The economy remains vulnerable to any slowdown of economic activity in the euro area or among other major trading partners, such as Russia," whose growth prospects have been hard hit by Moscow's standoff with the West over the crisis in Ukraine.

The agency further explained its negative outlook by predicting there was a one-in-three chance it would lower the AAA rating within two years "should no clear signs emerge that Finland's negative economic and fiscal debt trends are being reversed."