And then there were an even dozen, including Australia.
The number of countries with the highest credit rating – AAA stable shrank by one on the weekend when Standard & Poor’s cut Finland’s rating to AA plus with a stable outlook.
That means only Australia, Sweden, Canada, Lichtenstein, Luxembourg, the UK, Denmark, Norway, Singapore, Hong Kong, Germany and the UK have AAA rated stable economies according to S&P.
It will increase demand for the Aussie dollar over time. Some 55 central banks and other bodies have investments in Aussie dollar assets in their official reserves.
The agency’s move means that only Germany and Luxembourg are the Euro area’s last AAA-rated economies.
The UK, Sweden, Norway, Denmark and Lichtenstein are outside the Eurozone (there must be a message in that fact. It’s all about having your own currency).
Fitch and Moody’s have the US on a AAA rating, S&P doesn’t, but that could change early next year, once the mid term elections next month are out of the way.
But a win for the Republicans, which seems increasingly likely, would probably see no change in the US rating of AA plus stable because of the potential for two years of political brinkmanship until the 2016 Presidential poll.
The Netherlands is another country whose rating AAA with Fitch and Moody’s but not S&P.
S&P has been taking domestic political factors into account in its ratings for several years. That is a factor in the lowered rating for the Netherlands.
Standard & Poor’s took the action on Finland’s rating because of economic weak development and an outlook for more of the same.
Weak domestic political leadership was also a factor in the downgrading of Finland because of the reluctance of the country’s governments to reform the labour market and cut spending.
S&P said Finland could experience “protracted stagnation” due to its aging population, shrinking workforce and weakening external demand.
In addition, S&P cited the country’s dwindling market share in the global IT industry (thanks to the decline of Nokkia) and its relatively rigid labor market as contributing factors.
S&P warned of Finland’s vulnerability to Russia, which accounts for about one-tenth of total exports, or about 4% of country’s GDP.
It said it expects Finland to post its third consecutive year of negative real GDP growth, as real output remains about 6% below its 2008 level. Further, the rating firm said, Finnish exports have underperformed world trade since 2008, an indicator of lower competitiveness.
S&P said it expects Finland this year to post its third consecutive year of negative real GDP growth, as real output remains about 6% below its 2008 level. And despite weak economic performance, the rating firm noted, the country’s labor costs have risen above those of the eurozone.
Finland has GDP of around $US256 billion and has struggled to consolidate its public finances and reduce public debt.
S&P It expects the country’s deficit to widen to 2.7% of its gross domestic product in 2014. That’s still below the 3% limit under eurozone rules.
That 3% limit was one of the reasons why S&P took another rating move against a key eurozone economy as well over the weekend.
S&P lowered its outlook for France to negative from stable, while affirming the nation’s double-A long-term rating.
The ratings firm said; “the negative outlook indicates our view that a robust recovery of the French economy could prove elusive and that France’s public finances could deteriorate beyond 2014.”
“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 also affirmed its A-1+ short-term rating for France,” S&P said.
A negative outlook means there is a one in three chance of a cut to the long term rating in the next 18 months.
S&P also lowered its outlook on the European Financial Stability Facility to negative from stable to reflect the lower outlook for France, the EFSF’s second largest guarantor after AAA-rated Germany.
