Boston, MA -- (ReleaseWire) -- 05/28/2014 -- In the short term, we believe that Finland's fiscal situation remains one of the most robust in Europe, and do not expect it to suffer from a ratings downgrade in the near future, expecting it to remain one of just four remaining countries in the eurozone to be awarded AAA status from all three major ratings agencies.
H owever, over a longer time horizon, looming structural challenges pose a threat to public debt dynamics and may impede fiscal flexibility. Several key sectors, including forestry and papermaking, shipbuilding and telecommunications remain in terminal decline, while high labour costs are acting as a deterrent for investment and importers of Finnish goods, despite strong structural competitiveness. This has cast doubt over the government's ability to sustainably increase aggregate demand through fiscal stimulus.
Major Forecast Changes
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We have revised down our forecasts for real GDP in 2014, and now expect a 0.4% expansion, versus a previous forecast of 0.8%, followed by growth of 1.3% in 2015 and 1.2% in 2016.
Key Risks To Outlook
A deeper than anticipated eurozone recession represents a severe downside risk to our export forecasts for Finland. While we are already pencilling in a significant slowdown, a eurozone real GDP contraction of 1% or greater could severely impinge upon Finland's highly integrated export market, weighing heavily on real GDP growth in 2013 and beyond as a consequence.
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