Fitch Ratings downgrades Finland's outlook from stable to negative, with AA+ rating
Date
8/11/2024 3:44:43 AM
(MENAFN) On Friday, Fitch Ratings downgraded Finland's outlook from stable to negative, while maintaining its AA+ credit rating. This revision is attributed to several factors, including the country's rising public debt, insufficient progress in fiscal consolidation, and uncertainty regarding future fiscal measures. Fitch expects the fiscal deficit to widen this year, forecasting it will increase to 3.7 percent of GDP in 2024, up from 2.9 percent in 2023. This projected increase is primarily driven by elevated social spending, adjustments in wages and pensions, the impact of a recession on government revenues, and reduced unemployment insurance contributions.
Looking ahead, Fitch anticipates only a modest improvement in Finland's fiscal deficit, expecting it to decline slightly to 3.2 percent of GDP in 2025 and further to 2.7 percent in 2026. The agency also projects a contraction in Finland's economy, estimating a decline of 0.3 percent this year, following a 1.2 percent contraction in the previous year. This economic downturn is attributed to a significant drop in inventories and sluggish growth within the European Union.
Additionally, high interest rates set by the European Central Bank are exacerbating Finland's economic challenges, particularly due to the high proportion of variable-rate loans. This situation is curtailing investment and reducing private consumption. While Fitch expects some recovery in economic growth in 2025, which will support government revenues and the impact of approved consolidation measures, increased military expenditures, such as the procurement of F-35 fighter jets, are projected to adversely affect the budget.
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