We currently have Finland on a "negative outlook". It is being pressured by the same factors we see in Belgium, France and Austria, tells Scope economist Eiko Sievert to TT.
Finland is still marked by Nokia's fall from its throne as the global mobile giant after Apple launched the iPhone in 2007. Added to this are the effects of the pandemic, Russia's offensive war against Ukraine, the inflation and interest-rate shock and - since last year - the Trump administration's tariffs, according to Sievert.
Aging population
The country has a rapidly aging population, with a higher proportion of retirees than other Nordic countries. As an export-dependent EU country, Finland is also well in the firing line of the uncertain trade relationship with the Trump administration.
Domestic consumption is being held back by weak confidence in the future and falling house prices. And productivity growth is weak. In short, after five years of stagnation, the recovery is slow.
In addition, successive years of large budget deficits are making the interest-bearing national debt increasingly harder to bear, which creates a need for austerity rather than stimulus.
According to Sievert, "fiscal restructuring" is needed.
"What is encouraging is that the Finnish government is making a conscious attempt to deal with the situation. The government has raised VAT to one of the highest levels in Europe and there is a broad political will to tackle the problem," he says.
And the number of public sector employees is gradually declining as digitalization means that vacancies are not being filled.
The euro creates a certain amount of stability. But it deprives the Bank of Finland of the opportunity to stimulate with interest-rate cuts, notes Sievert.
Risk of lowered rating
“Negative outlook” means that Scope sees a risk that Finland’s credit rating could be downgraded from the AA-plus level. This can be compared to a “stable outlook” for the top AAA rating for its closest Nordic neighbors.
In Sweden, Norway and Denmark, growth prospects and credit ratings look significantly better, according to Scope analyst Alessandra Poli. The upward turn is clear and government finances are sound. While Finland's VAT is being raised, Sweden is striking back by halving food VAT.
"We are seeing a gradual recovery in all three countries as inflation falls. This is supporting domestic consumption, which is now becoming the main driver of growth," she says.
