Investing.com -- Finland had its long-term issuer and senior unsecured debt ratings downgraded from Triple-A to Aaa on Friday by analysts at Moody's Investors Service, as the nation confronts considerable economic challenges and soft growth prospects in the years ahead.
In issuing its decision, Moody's said Finland's ability to withstand shocks from major structural changes to its economy has waned due to long-term projections of weak growth for the Scandinavian nation. While Finland's economy has shown some signs of rebounding in recent months, Moody's warned that Finland's planned reforms will do little to drive growth over the next five years. By one estimate, Moody's forecasts that Finland's average annual growth during a 10-year period through 2019 will reach 0.8%, far below the near 2% level of its Aaa-rated peers during the span.
The downgrade came hours after the Finnish government announced that the nation's GDP expanded at a rate of 0.6% during the first quarter, marking a considerable acceleration from the fourth quarter of 2015. It also represented the strongest increase in Finnish economic growth on a quarterly basis in five years. Analysts expected to see an increase of 0.4% for the three-month period.
Concurrently, Moody's reaffirmed the government's short-term rating of P-1, while raising its short-term outlook from negative to stable. In spite of the broad structural issues facing the economy, Moody's said Finland's credit profile remains strong due to the nation's highly educated workforce and the government's substantial holdings of financial assets.
In March, Fitch lowered Finland's credit rating from AAA+ to AA+, as finance minister Alexander Stubb expressed significant concerns on the economy's ability to "reform itself." Finland, home to telecommunications giant Nokia (HE:NOKIA), has been hit hard by the rise of the Apple (NASDAQ:AAPL) iPhone and the Android in recent years. Last year, Nokia finished with annual revenue of €23.22 billion, down by more than 50% from the company's net sales in 2007. In April, 2014, Nokia completed the sale of its mobile phone business to Microsoft Corporation (NASDAQ:MSFT) as part of a €5.44 billion deal.
The Finnish economy has also struggled due to the prolonged commodity rout and the recession suffered by Russia, one of its top trade partner. Finland ranked fifth in the world in exporting paper in 2014 ($9.4 billion), representing 5.4% of all paper exports worldwide.
Last September, Stubb described Finland as the "sick man of Europe," after its GDP growth for the previous quarter ranked second-lowest among countries in the euro zone. Finland has the eighth-largest economy in Europe and the fifth-highest GDP per capita.