Finland’s credit strength just took a hit. On Friday night, Fitch Ratings downgraded the country’s long-term foreign-currency issuer rating from “AA+” to “AA,” citing rising debt and weak efforts to control it. The decision ends nearly a decade of rating stability and keeps the outlook at Stable. According to Fitch, government debt is still rising, with no solid signs that the current administration can stop it. They expect the debt-to-GDP ratio to hit 86.3% in 2025, up from 82.1% in 2024, and project it to go over 90% by 2029. That number stands in sharp contrast to the 49.4% median for countries in the same rating tier. The agency said the increase is being driven by budget shortfalls, low economic growth, rising interest costs, and stock-flow mismatches. Fitch says consolidation efforts aren’t enough The downgrade followed Finland’s €9 billion fiscal package rolled out in 2023 and 2024, worth about 3.3% of GDP, which was supposed to steady public finances by 2027. But Fitch said it won’t get the job done, especially with total government spending stuck at 57.7% of GDP for 2024. The agency warned that this spending is unlikely to fall anytime soon due to age-related costs, increased defense budgets, and growing social payments. Despite the rising costs, the government plans to introduce tax cuts in 2026 and 2027 for both income and corporate taxes, moves that may help growth but will worsen the deficit. Fitch forecasts the general government deficit to drop only slightly from 4.4% of GDP in 2024 to 4% in 2025, and remain above 3% until at least 2027. That’s much higher than the 2.1% average among peer nations. The gap is being pushed by slow revenue increases, growing pension obligations, and a significant rise in defense spending , which is set to reach 3% of GDP by 2029, with a surge in outlays planned for 2028 and 2029. Weak growth, higher unemployment, and credit stagnation Finland’s economy hasn’t kept pace with the rest of Europe . Fitch highlighted that GDP remains close to 2019 levels, while the EU average saw 5% growth over the same period. Growth for 2025 is expected to be just 0.9%, up from 0.4% in 2024, helped by lower inflation and slightly better household incomes. But high unemployment and low consumer confidence are still dragging things down. Investment is expected to rebound slightly thanks to clean energy, new technologies, and defense-related infrastructure, but confidence in the private sector is too low to push strong momentum. Growth may rise to 1.4% in 2026 and 1.5% in 2027, but still trails the expected 2.5% and 2.1% averages for countries with similar credit ratings. Fitch linked that weakness to aging demographics, low productivity, and ongoing trade uncertainties. The central bank pegs potential growth at around 1%. Still, Finland’s rating wasn’t cut further because of some remaining strengths. Fitch said its pension system has assets equal to 98% of GDP, and about a third of those are in public pension funds. Even with an aging population, those reserves are expected to stay near 75% of GDP by 2050. The government is also planning a €1 billion drawdown from the state pension fund in 2027 to cover spending. But job conditions are deteriorating. The unemployment rate climbed to 9.2% in the first quarter of 2025, up from 7.9% a year ago, making it one of the highest in the eurozone . That’s despite the employment rate staying historically high, supported by strong immigration and more older workers staying in the labor force. Fitch expects the unemployment rate to average 9% this year, before easing to 8.3% by 2027. Inflation is also picking up. Fitch predicts the annual rate, based on HICP, will move up to 1.9% in 2025 from 1% in 2024, then settle around 2% in 2026 and 2027. Meanwhile, credit activity is still weak. Even after recent rate cuts, demand hasn’t improved. Household borrowing is flat and corporate loans are declining. Over 90% of mortgages are on floating rates, so debt servicing costs are rising. Still, banks remain solid. The non-performing loan rate is stable at 1.2%, although it’s higher in construction, and core capital ratios are strong at around 18%. Want your project in front of crypto’s top minds? Feature it in our next industry report, where data meets impact.
