Finland Times

 

Reijo Heiskanen. File Photo – Lehtikuva.

Weak economic growth and once again downgraded economic growth outlook threatens to drive the country into deflation, according to the assessment of OP Pohjola’s chief economist Reijo Heiskanen.

 

In a situation of deflation spiral, the country's economy shrinks because people postpone decisions on consumption due to falling prices.

 

The second quarter Gross Domestic Product (GDP) decreased by 0.4 percent.

 

Working day-adjusted GDP was one percent lower compared to the corresponding period of last year.

 

“Once again, the economic expectations have disappointed. It seems the economy will shrink this year and the outlook for next year has weakened. If next year we are also in a situation where the economy does not grow and we are in negative inflation then official criteria of deflation will start to be met,” Heiskanen said.

 

The export market has been undermined at the moment by, for instance, Swedish policy of monetary easing and weak Swedish currency, weakening economic situation in Russia, slowdown of economic growth in the euro area and the devaluation of the Chinese currency which affects large Finnish listed companies.

 

Furthermore, global economic growth, according to Heiskanen currently focuses on the side of service sector.

 

The worse scenario would be a situation whereby the envisaged social contract would fail to materialise forcing the government to resort to 1.5 billion euros additional measures, he said 

 

“It would be a very bad scenario and would have an adverse impact on the economy. In addition Finland is every time on a special watch on how it would be able to respond to unprecedented situation where the economy continues to shrinking for subsequent years,” Heiskanen added.