Risks of deflation loom in Finland

Latest Finnish economic statistics triggered warnings about a deflationary spiral.

The Friday figures from the Finnish National Centre for Statistics indicated a 0.4 percent decline of the GNP in April-June from the previous quarter and one percent decline from the same period in 2014.

In July inflation in Finland remained negative for the seventh month in succession. Consumer prices declined 0.2 percent. The business media Taloussanomat described Finland as "hovering on the brink of deflation".

Analysts warned against the spectre of a prolonged deflation. Chief economist Pasi Kuoppamaki of the Danske Bank said in a release that a moderate decline in prices supports households, but when continuing it can lead to a general downward spiral.

Economist Juhana Brotherus of the Hypo Group said deflation is beneficial in a short term, but detrimental later. "Zero level inflation will boost purchasing power for a while, but is painfully damaging if it continues longer", he told local media.

Brotherus said a deflationary spiral would give a serious blow to the Finnish housing market. Brotherus saw "insufficient measures of the European Central Bank" as an underlying reason for the situation.