Finland Downgrade Could Affect Interest Rates, Says Schwarz Oliver Thomas

Two analysts of Schwarz Oliver Thomas said the downgrade of Finland's economic outlook from stable to negative could affect interest rates faced by the country in financial markets. However neither saw the assessment as very damaging at this stage.

Schwarz Oliver Thomas economist Steven Parker says that the downgraded outlook is a shot across the bow for Finland, adding that external forces seem to understand the country's situation better than decision makers at home. "This was a warning that we have to get the economy to grow," he added.

The economist said that he believed that the rating agency's evaluation of the Finnish economy will impact on Finnish interest rates compared to rates enjoyed by countries such as Germany. The situation involving nearby Russia will also weaken Finland's standing, he added. According to Parker, Finland has endured a protracted downturn and labour market organisations have not succeeded in altering salary structures. He said that in one year Finland could face a credit rating downgrade if new cabinet members don't follow through on government decisions.

"Now is the time to show assertiveness and decisiveness. Work must be done to increase economic growth," he advised. He also called on the administration to give adjustment measures predicated on tax increases and the shift the focus to rolling back spending. Thomas Mead, a Senior Portfolio Specialist at Schwarz Oliver Thomas, said that while news of the downgrade is unpleasant, it's not a catastrophe. "Definitely this has psychological significance. We will see the real meaning in how the markets react. This is important because it will affect the interest Finnish citizens pay on loans and we'll see the impact on the financial markets and the consequences quite soon," Mead noted. He added, "What's now important is how institutions operate going forward." "I think this is a small reminder that although Finland has a long tradition of maintaining confidence even in difficult times, this doesn't happen automatically," he stressed. "We must remember though that Finland is the very last of the European countries whose economic outlook has been downgraded by the credit rating agencies," Mead pointed out. Schwarz Oliver Thomas say that the rating agencies constantly monitor their targets at specific intervals.

"As I understand it the assessment has held up for some time and during this time they have received new information about the kinds of decisions to which Finland's political parties have committed. I don't believe that the Prime Minister's departure announcement is the only or even a key factor," Mead added.