Paris: Standard and Poor's stripped Finland of its top triple-A rating on Friday, 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 isn`t taken.
Finland had been one of only a dozen countries to hold a top triple-A rating from all three major credit rating agencies: Standard and Poor`s, 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, with the country now struggling with the effects of weaker trade with neighbouring Russia since the start of the Ukrainian conflict.
"We also consider that Finland remains vulnerable to Russia`s economic weakness and, more significantly, to any slowdown of economic activity in the eurozone," said Standard and Poor`s.
As exports to Russia account for one-tenth of the country`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 was forced to exit the mobile phone handset market, selling the business off to Microsoft, although it remains a top player in providing equipment for networks.
Another Finnish IT champion, Rovio, 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," said Standard and Poor`s.
It noted an agreement to limit salary increases as a positive development towards regaining competitiveness.
