Fitch Ratings, a New York-based credit ratings agency, has reappraised Finland’s financial status, stating that “prospects for economic growth are weak and have deteriorated”. Fitch downgraded Finland’s economic forecast from stable to negative, but affirmed its triple-A premium credit rating.
Released late Friday night Finnish time, the appraisal expects Finnish GDP growth to be 0.5 percent in 2015, a downward revision of 0.6 percentage points since the last review. On a brighter note, the agency forecasts that growth will accelerate to 1.3 percent again in 2016.
The most recent report from Fitch says the Finnish economy is adjusting to sector-specific shocks in the electronics and paper sectors, and is also experiencing the effects of population ageing, showing a steady decline in the working-age population since 2010. This combination of the structural decline in key industrial sectors and a diminishing workforce has led to a sharp decline in productivity growth and in estimates of potential economic growth.
According to Fitch, Finland’s inflation-adjusted GDP is still seven percent lower than before the financial crisis began in early 2008.
Fitch is the smallest of the ‘big three’ credit ratings agencies with the most sway globally, and is normally the most positive credit appraiser of the three. Moody’s also decided to maintain Finland’s AAA status in its last report, but Standard & Poor's downgraded Finland to AA+ last October.
Good track record
Fitch praises Finland’s strong track record when it comes to prudent fiscal policy management and economic policy execution, but says future performance hinges on the coming elections.
“Parliamentary elections will take place on 19 April this year. The new government will still face a fiscal sustainability gap, over and above the consolidation measures already announced for this and the following years. While there is uncertainty about the detailed policy measures that the new government may introduce, we believe there is a degree of consensus across the political spectrum on the future direction of macroeconomic policy. We therefore expect that the new government will remain committed to ensuring public debt sustainability through a mix of fiscal adjustments and structural reforms”, the report says.
Credit ratings judge a country’s ability to pay its financial obligations in full and on time. The ratings affect the interest rates on repayment of loans. The better the credit rating, the lower the servicing costs associated with debt.