Finland: Risk Assessment
Country Risk Rating
|A3||Changes in generally good but somewhat volatile political and economic environment can affect corporate payment behavior. A basically secure business environment can nonetheless give rise to occasional difficulties for companies. Corporate default probability is quite acceptable on average.|
Business Climate Rating
|A1||The business environment is very good. Corporate financial information is available and reliable. Debt collection is efficient. Institutional quality is very good. Intercompany transactions run smoothly in environments rated A1.|
The economy is emerging painfully from recession
After three years of recession, the economy struggled hard to recover in 2015. Despite confidence indicators being on the whole healthy, growth even declined in Q3 2015 due, mainly, to a fall in manufacturing output (particularly in the electronics sector). Construction and services grew slightly. With regard to demand, exports and investment again contracted, and only consumption, sustained by lower inflation and a temporary postponement of loan repayments, awarded by certain banks, continued to report positive growth. However, the external accounts have improved, thanks mainly to the lower oil bill. The unemployment rate reached 8.4% over the quarter, up by one point year on year. By contrast, nominal wages increased.
The resumption of growth is likely to be moderate in 2016, driven mainly by investment (investment in paper industry technologies and replacement investments). Increased activity in construction and services is also likely to sustain growth. However, uncertainties continue to put pressure on the vigor of external demand. The recession in Russia and the ban on the import of western food products imposed by Moscow is affecting exports and tourism. Meanwhile, the relatively high unemployment rate, fiscal austerity and the burden of household debt (120% of disposable income) are dampening domestic demand.
Sluggish growth and lower food and oil prices pushed inflation into negative territory in 2015. This is, however, expected to become positive again in 2016, in particular because of the planned increase in wages.
The country is seeking to overcome a serious industrial crisis and has seen its public finances deteriorate
The country is going through a real crisis of change and is having to reinvent its industrial model. This relies on the paper sector and the Nokia Corporation. These sectors have been strongly challenged by the emergence of touch screens and smartphones. Furthermore, the Finnish economy has lost competitiveness due to a decline in productivity and a sharp rise in real unit labor costs. The country has, however, started to adjust. The paper and telecommunications sectors have made substantial staff cuts and are reorganizing their production. Nokia, for example, sold its mobile telephone business to Microsoft in 2013 and its shareholders approved the purchase of the French group, Alcatel Lucent, in December 2015, reflecting the Finnish company's ambition of becoming one of the world's top three telecom equipment makers. Meanwhile, a wage restraint policy has been put in place and labor productivity has begun to improve.
At the same time, the authorities have implemented a policy of public spending restraint. However, this has exacerbated the slowdown in activity and the public deficit exceeded the 3% of GDP threshold in 2014. Another round of spending cuts is planned in 2016 aimed at reducing the imbalance in the public accounts. Moreover, in 2014 the authorities presented a pension reform package aimed at reducing the budgetary costs of an aging population. Government debt, which exceeded the 60% of GDP threshold in 2015, is expected to continue to rise.
A major reform program but tensions within the governing coalition
Finnish electors conferred power on the Centre Party in the April 2015 parliamentary elections. The coalition government, which also includes the far-right Finns Party and the center-right National Coalition Party, announced a major program of reforms, which, in particular, involves restructuring the labor market and welfare system, with a view to reducing unit labor costs, increasing the labor supply and improving competitiveness. On top of this are measures intended to improve productivity in both the private and public sectors. The coalition could, however, prove fragile, as in the case of the compromise struck by the Prime Minister in November 2015, after threatening to dissolve the government, on a reform consisting of transferring responsibility for providing social and healthcare services from the municipalities to the regions.