HELSINKI: Finland dropped out of the small group of euro nations with a full set of top credit ratings as Standard & Poor’s cut it to ‘AA+’ from ‘AAA’, citing persistent economic growth problems.
Finland has yet to return to its 2008 economic output levels after exports dwindled due to the eurozone crisis, problems at its mobile phone and paper industries and the crisis over Ukraine.
The S&P cut leaves Germany and Luxembourg as the only euro states with a full set of top-grade ratings from all three main rating agencies. Finland’s “downgrade reflects our view of the risk that the Finnish economy could experience protracted stagnation because of its ageing population and shrinking workforce, weakening external demand, loss of global market share... and relatively rigid labour market,” S&P said in its report. It gave a stable outlook for the new rating.
Finland had taken pride in its top ratings. During the eurozone debt crisis, Alexander Stubb, now prime minister, said in 2011 that Darwinian principles should apply and the strongest economies in the currency bloc should have the leading say in how it is run.
However, this year, Finland has taken additional economic hits from the Ukraine crisis and Russia’s slowdown: its eastern neighbour is one of its main trade partners. Its flagship company Nokia, once global market leader in handsets, struggled to compete in smartphones with Apple and Google and finally sold its
entire phones business to Microsoft in April.
Meanwhile, the digital shift from print to online cut Europe’s paper demand, leading to heavy restructuring at firms such as UPM-Kymmene and Stora Enso.
“Finnish exports have underperformed world trade since 2008, which we interpret as a sign of lower competitiveness, rendering an export-driven recovery unlikely,” S&P added.
The two other main rating agencies, Moody’s and Fitch, recently left their triple-A ratings for Finland untouched.
S&P noted that despite Finland’s weak economic performance, labour costs increased by over one-fifth between 2007 and 2013, well above the eurozone’s average of one-eighth.
“It is clear the (Finnish government bond) yields will jump somewhat on Monday,” said chief economist Aki Kangasharju from Nordea Markets, referring to the higher returns investors will expect for the increased risk of holding the bonds. “The downgrade came sooner than expected.”
He estimated the downgrade would add around $25m-$38m to Finland’s borrowing costs.
Reuters
