Finland lost its last top-grade credit rating as Moody’s downgraded it on Friday to Aa1 with a stable outlook, citing weak economic growth and its negative impact on the general government debt ratio.
Once known for prudent fiscal policy and innovation, the Nordic country’s economy has underperformed its euro zone peers in recent years for reasons including high labour costs, the decline of Nokia’s former phone business and a recession in neighbouring Russia.
“The economy is showing some signs of positive momentum with a return to positive growth in 2015 following three years of recession. However, growth over the next five years will remain weak,” Moody’s said in its report.
Fitch downgraded Finland to Aa+ with a stable outlook in March, while Standard & Poor’s cut its rating for the country to AA+ in 2014, later giving the rating a negative outlook.
Long proud of its top grade ratings, Finland took a hard line against euro zone bailouts during the currency bloc’s debt crisis.
This year, the European Commision expects Finland’s economy to expand by 0.7 percent, less than any other EU country except Greece.
Moody’s said the second driver for its downgrade is the negative impact of Finland’s weak economic strength on the general government debt ratio.
The government’s debt level, which breached the EU limit of 60 percent last year, is expected to increase in the coming years.
Despite an earlier warning, the European Commission said in May that Finland was complying with the rules on government debt.
Moody’s estimates Finland’s economy to grow at an average of 0.8 percent over 2010-2019, less than half the median of triple-A rated countries.
However, data earlier on Friday showed Finland’s gross domestic product in the first quarter grew more than initially estimated, fueling hopes for a stronger recovery.
Germany and Luxembourg remain the only euro zone countries with a full set of triple-A’s, while Sweden, Denmark and Norway also have top ratings.
Source: Reuters
