Sweden raises 2014 growth forecast in spring budget, last before vote

STOCKHOLM Tue Apr 8, 2014 7:41pm EDT

Sweden's Minister of Finance Anders Borg speaks during the international conference ''Against The Odds: Lessons From The Recovery In The Baltics'' in Riga June 5, 2012. REUTERS/Ints Kalnins

Sweden's Minister of Finance Anders Borg speaks during the international conference ''Against The Odds: Lessons From The Recovery In The Baltics'' in Riga June 5, 2012.

Credit: Reuters/Ints Kalnins

STOCKHOLM (Reuters) - Sweden's economy will grow at a faster pace than previously expected this year the government said on Wednesday in a spring budget that promised prudence rather than new spending measures ahead of an election in September.

In what could be his last budget if the government loses the

election, Finance Minister Anders Borg forecast the economy would expand by 2.7 percent this year compared with a forecast given in February of 2.5 percent growth.

The economy will pick up pace next year as global recovery boosts exports, expanding 3.3 percent compared with the government's earlier forecast of 3.5 percent.

"The drawn-out international downturn is expect now to ease and the Swedish economy is gradually recovering," Borg, said, outlining the government's budget in newspaper Dagens Nyheter.

He said there were still downside risks associated with the global economy.

Borg has already said that if the center-right government is re-elected in September, it will raise the vehicle tax and taxes on tobacco and alcohol to fund more investment in education and to build up buffers in state finances.

He said Alliance planned spending measures worth 5 billion Swedish crowns ($770 million) in 2015 rising to 8 billion in 2018.

All the measures will be financed by tax increases and the gradual removal of tax breaks on pension savings.

"The expected recovery means that fiscal policy is entering a new phase," Borg said.

"We are going to once again build up buffers protecting the Swedish economy. That is crucial if we are to be able to support jobs and welfare when the next crisis comes."

The tough fiscal message represents a U-turn for the Alliance, the first center-right government to hold power for eight years in Sweden and which has cut taxes by around 140 billion Swedish crowns ($21.38 billion) since it took office in 2006.

Despite the cuts and the downturn, public debt levels are expected to fall to around 35 percent of GDP in the coming years and Sweden is one of just a handful of European countries to retain AAA status from rating agencies.

Average debt to GDP levels in Europe are around 90 percent.

The Alliance is hoping that by stealing the opposition's thunder on tax hikes it can win over voters worried the cradle-to-grave welfare state is falling apart and who prize Sweden's recent economic stability.

The most recent opinion poll gave the opposition bloc of the Social Democrats, Green and Left party around 52 percent of the vote currently against around 37 percent for the center-right government.

($1 = 6.4950 Swedish Crowns)

(Reporting by Stockholm Newsroom; Editing by Andre Grenon and Eric Walsh)

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