Finland Loses AAA Rating: How Much Did Nokia Contribute?

The nation of Finland just found out that negative gross domestic product (GDP) comes with consequences. Standard & Poor’s has lowered its economic assessments of Finland, noting that subdued external demand issues are adding to pressure from a structural economic and demographic situation. In short, Finland’s AAA rating was downgraded to AA+ on Friday.

S&P said that Finland’s outlook is now Stable. Finland’s short-term sovereign credit rating was maintained as A-1+ and the outlook for the short-term rating was Stable as well.

Should this be a shock? Not really. We included Finland as a one of five nations that could lose its AAA rating (along with the U.S.) — back in 2011.

S&P sees risks to the Finnish economy as it faces protracted stagnation because of an aging population, a shrinking workforce, weakening external demand, a loss of market share in information technology, a structural retrenchment of its forestry sector and a relatively rigid labor market.

Another problem is that S&P now sees 2014 real output being the third consecutive year of negative real GDP growth. The ratings agency showed that Finland has averaged a contraction of 0.26% for each year over the past decade, and 2014 real output is put at 6% below the 2008 level. During the same time, labor costs have risen by more than 20%.

There is a lot more covered by S&P, but 24/7 Wall St. might point to Nokia Corp. (NYSE: NOK) as one of the key barometers here leading up to this downgrade. Nokia’s decline would seemingly have a role in this, and when we covered nations that still had perfect credit, we noted that Nokia paid as much as 23% of Finland’s corporate income taxes from 1998 to 2007. Needless to say, Nokia’s decline has been years in the making, and now the question is whether a restructured Nokia will return to its glory days. Nokia shares were down less than 1% at $7.97 in New York trading after the S&P downgrade of Finland broke.

Another country lost its AAA rating, likely to be followed by more in the years ahead.

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