World Economy

Fitch Voices Concern About Finnish Household Debt

Fitch Voices Concern About Finnish Household DebtFitch Voices Concern About Finnish Household Debt

Fitch Ratings has called attention to the mounting debt burden of households in Finland. The credit rating agency reminds in its latest country review that the debt-to-income ratio of households rose to 125% in the second quarter of last year–a level that represents a 20 percentage point increase from ten years ago despite remaining below the levels in other Nordics.

Fitch estimates that the measures introduced to reduce the indebtedness of households in Finland, such as imposing minimum requirements on mortgage risk weights and gradually removing mortgage-related tax incentives, are steps in the right direction but not necessarily sufficient, NewsNow reported.

“Structural factors that feed into higher house prices in urban areas still support higher household leverage,” it points out.

Olli Rehn, a board member at the Bank of Finland, drew attention to the risks associated with household indebtedness last Tuesday. “The Finnish economy has now put recession behind it. A rapid increase in debt does not promote faster economic growth but entails the risk of over-indebtedness,” he warned.

Fitch Ratings, despite its concerns about household debt, affirmed its AA+ credit rating and stable outlook on Finland on February 17. It reminded, however, that the economic situation is likely to deteriorate in the second half of the year.

“Economic momentum will be sustained in the first half of 2017 but begin to fade slowly thereafter as a combination of tax and administrative measures reduce household income, thus hitting consumption, and there is a cyclical deceleration in investment,” it predicted.

“This will only partly be offset by a recovery in export growth tied to robust demand in key markets such as Germany and competitiveness gains from recent reforms.”

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