Ratings agency Standard and Poor’s (S&P) on Friday kept its “AA” rating for France, but lowered its outlook from “stable” to “negative” on fears over the country’s budget situation.
S&P estimated France’s budget deficit will reach 4.1 percent of GDP for the period of 2014-2017, up from its April forecast of 3.1 percent.
“In our view, the French government’s budgetary position is deteriorating in light of France’s constrained nominal and real economic growth prospects,” S&P said in a statement.
“We believe that, due to policy implementation risk related to the budgetary consolidation and structural reforms, a recovery of the French economy could prove elusive and that France’s public finances might deteriorate beyond this year, although this is not our base-case scenario,” it added.
French Minister of Finance Michel Sapin reacted by saying the nation’s debt was “one of the surest in the world.”
“French debt is one of the surest and most liquid in the world, with debt levels very much contained,” he said in a statement.
France’s zero-level growth and record-high unemployment have seen it dubbed the “sick man of Europe,” and Sapin recently announced France would not meet EU borrowing limits for three more years.
EU rules state the public deficit must be below three percent of total economic output but Sapin said this would not happen until 2017. France had previously pledged to bring it back to that level by next year.
S&P on Friday stripped Finland of its top triple-A rating, cutting it by one notch to “AA+,” due to dimmed economic growth prospects in the eurozone nation.
The agency said the “downgrade reflects our view of the risk that the Finnish economy could experience protracted stagnation” due to headwinds from the global economy, its key IT sector taking a hit, and demographic problems.
“Downside risks to the weak economic growth outlook exist if global demand softens further,” it added amid warnings this week from the IMF that global growth is slowing and the eurozone risks entering recession if action is not taken.
Finland had been one of only a dozen countries to hold a top triple-A rating from all three major credit rating agencies: S&P, Moody’s and Fitch.
While Finland has enjoyed a long period of growth due to its strong IT sector and expanding trade with Russia, those days are long gone.
Finland’s economy contracted by 1.2 percent last year and by 1.5 percent in 2012, and the government expects no growth this year.
“We also consider that Finland remains vulnerable to Russia’s economic weakness and, more significantly, to any slowdown of economic activity in the eurozone,” S&P said.
As exports to Russia account for one-tenth of the nation’s total, or about four percent of total economic output, the ratings agency estimated that a slowdown in exports to Russia could cause a one-off reduction in GDP growth of 0.8 percent.
Finland has also seen its vaunted tech sector take a hit.
Finnish champion Nokia Oyj was forced to exit the mobile phone handset market, selling the business off to Microsoft Corp, although it remains a top player in providing equipment for networks.
Another Finnish IT champion, Rovio Entertainment Ltd, the maker of the popular mobile game Angry Birds, announced earlier this month it was cutting up to 130 jobs, a sixth of its staff, blaming flagging sales growth.
“In our opinion, it remains uncertain whether other sectors can consistently compensate for the output loss in Finland’s wood and paper industry and its electronics industry,” S&P said.
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TRANSFORMATION: Taiwan is now home to the largest Google hardware research and development center outside of the US, thanks to the nation’s economic policies President Tsai Ing-wen (蔡英文) yesterday attended an event marking the opening of Google’s second hardware research and development (R&D) office in Taiwan, which was held at New Taipei City’s Banciao District (板橋). This signals Taiwan’s transformation into the world’s largest Google hardware research and development center outside of the US, validating the nation’s economic policy in the past eight years, she said. The “five plus two” innovative industries policy, “six core strategic industries” initiative and infrastructure projects have grown the national industry and established resilient supply chains that withstood the COVID-19 pandemic, Tsai said. Taiwan has improved investment conditions of the domestic economy
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