Monday, September 21, 2009
By Johan Sennero and Niklas Pollard
STOCKHOLM (Reuters) - Sweden's center-right government, hoping to ride a wave of stimulus measures to re-election next year, announced on Sunday extra spending plans to underpin tentative signs of economic recovery.
The government stuck to its most recent forecasts for the economy of a 5.2 percent contraction this year and just 0.6 percent growth in 2010. The economy is not seen taking off before 2011, when a 3.1 percent expansion is predicted.
Analysts said the government was taking an excessively pessimistic view of the near-term outlook so it could get more political mileage if economic fortunes brightened.
Finance Minister Anders Borg characterized the budget as a prudent response to tough times.
"We are signing an insurance policy against long-term and extensive injuries to the Swedish economy from this financial crash," Borg told reporters as he presented the budget bill.
After enduring its worst contraction since World War Two in the first quarter, the Swedish economy limped out of recession in the following three months with gross domestic product growing ever so slightly quarter-on-quarter.
Public finances have also begun to recover, leaving Prime Minister Fredrik Reinfeldt's government with the fiscal muscle to roll out more stimulus measures to ensure the recovery is not nipped in the bud.
The budget includes 31.85 billion Swedish crowns ($4.6 billion) in unfinanced spending next year and some 46 billion crowns of such spending in the following two years.
WOOING VOTERS
The fiscal balancing act comes ahead of elections due in September 2010. Opinion polls in recent months have shown the coalition neck-and-neck with the opposition, led by the Social Democrats who were in power for six of the past seven decades.
On Saturday, the government said it would cut income taxes a total of 10 billion crowns from next year in a move it said would boost employment.
Yet tax cuts in egalitarian-minded Sweden are not necessarily a sure-fire vote winner.
Swedes have shown themselves to be largely content over the years to suffer some of the world's highest taxes in return for extensive benefits and public services.
The opposition criticized the government's approach.
"We want to see long-term investments in welfare, not just short-term measures," Social Democrat economic policy spokesman Thomas Ostros said. Continued...
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