ISTANBUL

Fitch Ratings announced Friday it revised Finland's outlook to negative from stable, but affirmed its AA+ rating.

The revision reflects the country's rising public debt, insufficient fiscal consolidation, uncertainty about further measures, and expectation of a wider fiscal deficit this year.

Fitch said it forecasts the government deficit rising to 3.7% of GDP in 2024, from 2.9% in 2023, "driven by increased social spending and wage and pension indexation, alongside the effect of the recession on revenues and reduced unemployment insurance contributions."

"We expect the fiscal deficit to decline only modestly to 3.2% of GDP in 2025 and 2.7% in 2026," it added.

The rating agency expects Finland's economy to contract 0.3% this year, after contracting 1.2% last year, due to the sharp decline in inventories and weak EU growth.

In addition, pressure from high European Central Bank interest rates are amplified by a high share of variable-rate loans, curtailing investments and dampening private consumption, according to the agency.

"Although growth will rebound in 2025 supporting revenues and approved consolidation measures will show effects, increased military spending, particularly the delivery of F-35 fighter jets, will negatively impact the budget," it said.