S&P downgrades Finland’s credit rating from AAA to AA+

Standard & Poor’s cut Finland’s credit rating from AAA to AA+, amid concerns of the country’s pace of economic growth.

Finland was one of the few eurozone nations to have a complete set of top credit ratings. However, the country has not recovered back to its 2008 economic output levels, mainly due to poor exports and the nation’s phone and paper industries not performing that well.

The S&P downgrade only leaves the two euro states of Germany and Luxembourg with a complete set of top grade ratings from the three major rating agencies.

According to a report by the S&P, the “downgrade reflects our view of the risk that the Finnish economy could experience protracted stagnation because of its aging population and shrinking workforce, weakening external demand, loss of global market share… and relatively rigid labour market.”

Adding that “Finnish exports have underperformed world trade since 2008, which we interpret as a sign of lower competitiveness, rendering an export-driven recovery unlikely.”

The Finnish company Nokia, which was once the global market leader in cellular devices, has performed poorly because of increasing competition from Apple and Google. In April the company sold its entire phones business division to Microsoft in April.

In addition, the recent shift from print to online has decreased the European demand for paper, affecting firms such as UPM-Kymmene and Stora Enso.

The two other major credit agencies, Fitch and Moody’s, still give Finland an AAA rating.

However, the downgrade may affect Finish borrowing costs by approximately 20-30 million euros ($25 million-$38 million). In the big picture this expense is small compared to the country’s government debt set to reach 100 billion euros in 2015. However it will send a message to the government which has been trying to protect its credit ratings for years through austerity measures.

On Monday Finnish government bond yields will likely increase by quite a bit because of the higher risk of now holding the bonds.

Antti Rinne, the Finnish Finance Minister, said that the rating cut does not mean that the country will be reviewing its fiscal policy.

He said:

“Our growth outlook has deteriorated, the reasons are known and we have already taken measures to address them,”

S&P, along with other major forecasters, predict that the GDP of Finland will shrink for the third consecutive year in 2014 and only show slight recovery in 2015.