The US credit agency Fitch Ratings has kept Finland's rating unchanged in the second-best AA+ category. In a report issued early Saturday Finnish time, it said that Finland's strengths include its administrative functionality, solid state of pension fund investments and eurozone membership.
According to Fitch, the Finnish economy shrank by 0.5 percent last year. It attributed the decline to factors including weak global demand and the impact of higher interest rates on consumption and investments.
The credit rating agency forecasts a modest 0.3 percent recovery in 2024, pointing to continuing challenges facing the heavy industry and construction sectors, among other factors.
Fitch predicts that domestic demand will gradually recover as real wages rise.
The firm expects growth will rise to 1.6 percent in 2025, as exports and investments see a recovery, partly driven by a broad portfolio of green investment projects.
Deficit will continue to expand
Fitch predicts that Finland's public finance deficit will grow to 3.5 percent of gross domestic product (GDP) this year, noting that this is in line with the government's budget forecast. Fitch estimates that last year's deficit was 2.4 percent of GDP. According to Fitch, the change reflects weaker tax revenue growth and higher-than-expected expenditures.
Next year, Fitch sees the deficit narrowing slightly to 3.2 percent of GDP, as economic growth picks up steam and austerity measures take effect.
Population ageing undermines growth
Fitch noted that public debt reached a record high last year and will continue to rise.
In Fitch's view, the government's stabilisation plans should slow the growth of public debt, but to stabilise the debt ratio in the medium term, more stabilisation measures are needed, possibly extending over more than one four-year election period.
According to Fitch, Finland's growth potential is weakened by structural factors, such as population ageing and low productivity growth. However, according to the company, significant pension assets mitigate the risks caused by demographics and the large debt burden.
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