Will Geezerization Cost Finland Another AAA Rating?

The economic consequences of a top-heavy population pyramid are predictable.

After dwelling on the political economy of East Asian depopulation in recent posts [1, 2], let's change the venue to Finland. Unfortunately for our Nordic friends, the dynamics of stalling population growth are equally dire. A few months ago, S&P downgraded Finland from AAA status, leaving Germany and Luxembourg as the only Eurozone members with top ratings from all three major credit rating agencies. (The others--Denmark, Norway and Sweden--still have the top rating with all three agencies but do not use the euro).

Now, we have news that Finland is on the cusp of another credit rating agency, Fitch, bringing it down a notch as public debt has increased markedly in recent times:

Finland came a step closer to losing its top credit grade at Fitch Ratings as divisions within the government led to a failure to stem the growth of public debt. The outlook on the northernmost euro member’s long-term AAA rating was reduced to negative from stable, the rating company said in a statement Friday.

While the statement affirmed the top rating, slow economic growth and mounting debt could lead to a cut, Fitch said. Finland’s government has allowed public debt to double since 2008 as economic growth proved elusive. It’s also missed all its key economic goals over the past four years and this month oversaw the collapse of a key health-care overhaul. 

Who's to blame for the malaise? Finnish officials cite slowing population growth:

“Our population is aging, which weakens potential economic growth,” Finance Minister Antti Rinne said in an interview Saturday on YLE TV1. “We also have a structural problem with exports; we now need export-led economic growth. To restore the balance in public finances, we also need to cut spending and increase revenue.” [Finland has been hurt by falling trade with Russia as sanctions take effect.]

Standard & Poor’s cut Finland’s top rating by one level in October, citing the prospect of protracted stagnation, while Moody’s Investors Service has the Nordic nation at its highest Aaa level. Fitch reduced its forecast for Finnish growth to 0.5 percent this year from 1.1 percent and said growth will accelerate to 1.3 percent next year.

So there: it's a cut-and-shut case of potential GDP growth being curtailed by an aging population in Finland. Its total fertility rate of 1.73 does not bode well for the future even if it's marginally higher than that of, say, Japan or Singapore. I'm becoming predictable in this regard, but Finland too could use more migrants.