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1st LD Writethru: Fitch downgrades Finland's outlook to "negative," affirms its AAA rating

Xinhua, March 21, 2015 Adjust font size:

Credit rating agency Fitch revised Finland's credit rating outlook to "negative" from "stable," but affirmed its triple-A rating, Finnish media reported on Saturday.

Reports quoted a Fitch press release as saying that the revision of the outlook on Finland's long-term foreign and local currency Issuer Default Ratings (IDR) was due to the country's weak and deteriorated prospects for economic growth.

The Finnish economy has experienced three consecutive years of negative growth since 2012. Fitch estimated that the country's real GDP (which is a macroeconomic measure of the value of economic output adjusted for price changes) is even 7 percent lower than the level of pre-financial crisis in the first quarter of 2008.

Fitch therefore slightly lowered its forecast for Finland's GDP growth to 0.5 percent from 0.6 percent made in last review, and predicted the growth in 2016 will be 1.3 percent.

In addition, the rating agency expected that Finland's general government deficit will be 2.7 percent in 2015, the same as last year's level, and will drop to 2.1 percent in 2016.

The country's public debt to GDP ratio is expected to soar to 63.3 percent, which exceeds the EU's threshold, by 2016, Fitch predicted.

Finland was given triple-A rating based on its strong political and social institutions, said Fitch, adding that its scores on governance indicators were higher than the 'AAA' peer median.

The general election of Finland will be held in the middle of April this year. Fitch pointed out that the new government will still face a challenge of a sustainability gap in public finance. The rating agency called on the new government to ensure debt sustainability through the long-planned structure reforms.

Finnish Prime Minister Alexander Stubb said the new government should agree on adjustment measures to balance the government finances at the beginning of the next term of office.

A bunch of structure reforms including pension, social and health care, as well as labor market reforms and others should be implemented as soon as possible, he added.

Reijo Heiskanen, chief economist at Finnish financial group OP-Pohjola, considered Fitch's negative outlook for the Finnish economy to be "not a surprise," reported Finnish national broadcaster Yle.

He said that the economic situation might continue to deteriorate, if no effective measures are taken.

Heiskanen suggested that Finland needs an export-led economic growth to bring the public finance into balance. Further saving measures are also necessary.

Finnish Minister of Finance Antti Rinne agreed with Heiskanen. He admitted that the aging population of Finland makes the potential economic growth weak, and the country also has problems in the export structure.

So far, Moody's has maintained Finland's AAA status, but Standard & Poor's has downgraded Finland's credit rating from the best AAA to AA+ over the country's stagnant economic growth. Endit