HELSINKI Standard & Poor's on Friday cut its outlook on Finland's triple-A credit rating from stable to negative, citing persistent growth problems and political uncertainties.
The move pushed spreads between Finnish and benchmark German bonds out to their widest in two weeks.
S&P affirmed its AAA credit rating for the Nordic country but said there was a one-in-three chance it could lower it in the next two years.
Finland is one of only three euro zone countries - along with Germany and Luxembourg - that still has a full set of top-grade ratings. But it is struggling to return to growth after a two-year recession as the euro zone economy and Finland's flagship paper-making and electronics industries sputter.
It is also contending with fissures in its five-party coalition government. Prime Minister Jyrki Katainen has said he will quit in June and others are likely to step down soon.
Foreign Trade Minister Alexander Stubb said S&P's move did not come as a surprise.
"One does not need an economics or an astrology degree to understand that Finnish economic growth and outlook is weak," Stubb told Reuters, adding the government would do all it can to get the economy going.
S&P cut its growth estimate for the economy to an average 1 percent in 2014-2016 from a previous 1.4 percent, and said there were risks of even weaker growth.
Finland's 10-year bond yield on Friday edged up to 1.839 percent from 1.830 percent at Thursday's close. German yields fell to 1.522 percent, bringing the spread between the Finnish and German benchmark bonds to its highest level since March 25, and analysts said they expected them to continue decoupling.
"The spread between Finnish and German bonds will increase because of this. Hopefully, the market pressure will urge the government to step up the planned structural reforms," said Nordea markets analyst Suvi Kosonen.
The country's left-right coalition government has cut spending and increased taxes by a total of around 7 billion euros ($9.7 billion) and prepared reforms to pensions and health care. Many of those have not been implemented, though, and S&P said the run-up to elections may stall such efforts.
Olli Rehn, who is on leave from his post as the EU's top economics officer to run for the European Parliament as a member of the opposition Centre party, said the current government was unable to take the needed tough choices.
"That's why it might be sensible to ponder whether the (parliamentary) elections should be organized earlier," Rehn told Reuters. "Finland cannot waste any time."
The elections are scheduled for April 2015, but analysts have said the quarrelsome coalition government could fall apart before then after Katainen's surprise resignation.
The five-party government may see many key ministers leaving soon. Finance Minister Jutta Urpilainen could lose her job next month if her Social Democratic Party replaces her as party leader with union boss Antti Rinne. Three other ministers, including Stubb, are candidates in the EU elections next month.
Left Alliance exited the government last month after a budget dispute, and the Greens have threatened to make a similar move to protest a nuclear reactor plan.
"The upcoming minister changes and the risk of the Greens' departure ... could further complicate the reform implementation," said Nordea's Kosonen.
(Additional reporting by Ian Chua; Editing by Larry King)