Finland seen suffering more ratings downgrades this year

By Jussi Rosendahl and Dhara Ranasinghe

HELSINKI (Reuters) - Finland could see another credit rating downgrade this year after Fitch downgraded it to Aa+ last week because of weak economic growth prospects, analysts said.

Described by its own finance minister, Alexander Stubb, as "the new sick man of Europe", Finland's economy has yet to regain its 2008 size following a string of setbacks such as a decline of Nokia's handset business and recession in neighboring Russia.

After the Fitch downgrade, Finland is left with one triple-A rating with a negative outlook, from Moody's. Standard & Poor's holds a AA+ rating, also with a negative outlook.

"Moody's will likely do the cut, and it is possible that S&P will downgrade its rating into a lower level in the course of this year," Nordea analyst Jan von Gerich said.

S&P is expected to report on Finland's rating this Friday, while Moody's reports in June.

Initial market reaction to Friday's downgrade was non-existent as analysts said much of the bad news had been priced into Finnish bond yields, which have risen over the past year.

Its 10-year bond yield was down 2.5 basis points at 0.48 percent on Monday, falling in line with euro zone peers and supported by the European Central Bank's bond-buying program.

However, further impact on Finnish bonds may be seen when it is clear what indexes Finland may fall out of as a result of the downgrade.

"The economic realities have been very weak lately... The reference group is not anymore Germany, it is closer to France or Belgium," said Danske Bank economist Pasi Kuoppamaki.

France, the euro zone's second biggest economy, has an AA rating from S&P and Fitch and an Aa1 rating from Moody's.

The yield gap between 10-year Finnish bonds and top-rated German Bunds is at 22 basis points, well above levels seen a year ago at close to zero.

Finland's economy grew just 0.4 percent last year after contracting for three straight years. This year, the European Commission expects the economy to expand by 0.5 percent, less than any other country in the EU except Greece.

The center-right government is pushing for a labor reform deal to boost export competitiveness, but Nordea's von Gerich played down its impact, saying: "It will likely be watered down ... There's nothing in sight that would truly accelerate growth."

Germany and Luxembourg remain the only euro zone countries with a full set of triple-A's, while Sweden, Denmark and Norway also have top ratings.

(Editing by Janet Lawrence)

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Spain, Morocco halt deadly rush on Spanish enclave after 49,000 cross in a day
• Toyota to fix software for 39,552 China-built EVs over safety hazards
• French preliminary inflation at 2.4% in July, above estimates