DBRS re-affirmed its AA rating and stable outlook for Finland on Friday.
The Canadian credit rating agency highlighted that the country’s economic recovery has gained significant momentum as comebacks in exports and investments have pushed growth forecasts for this and next year to almost three per cent.
“Despite the cyclical recovery, long-term growth is constrained by labour market rigidities and an ageing population,” it added later.
DBRS also expressed its concern that political disagreements over certain details of the social, health care and regional government reform could yet precipitate the collapse of the three-party ruling coalition led by Prime Minister Juha Sipilä (Centre).
“The coalition formed by the Centre Party, the National Coalition Party and the Blue Reform Party has a slim majority in the Parliament. Political uncertainty could increase ahead of the next general elections to take place by May 2019,” it said, adding that it does not foresee major changes in the policy direction or commitment to fiscal sustainability in Finland.
The credit rating agency also called attention to the risks arising from the possible escalation of protectionist measures, which could inhibit global trade and, as a result, reduce demand for Finnish exports.
Finnish households, it added, also have a relatively high, mostly mortgage-based debt-to-disposable-income ratio of 128.2 per cent.
“A substantial portion of the mortgages have variable rates, rendering these households more vulnerable to increases in interest rates or unemployment. However, there are no signs of an overvaluation of house prices or excessive debt-driven increases at the national level,” viewed DBRS.