Sweden plans to up defence budget to 2% of GDP as Russia threat looms

STOCKHOLM, March 10 (Reuters) - Sweden's government said on Thursday it planned to boost annual spending on defence to 2% of gross domestic product in response to a deteriorating security situation in Europe following Russia's invasion of Ukraine.

Countries in Europe - and across the globe - are looking at expanding defence budgets to meet an increasingly uncertain security outlook, with Germany among those promising a sharp increase in spending. read more

"Today, we present a new initiative with a clear message to the Swedish people and to the world around us. Sweden's defence capability must be greatly strengthened," Prime Minister Magdalena Andersson told a news conference.

Sweden's military spending has increased in recent years following decades of cuts after the Cold War ended, including buying the Patriot air defence missile system from U.S. arms manufacturer Raytheon Co.

The budget this year is 1.3% of gross domestic product (GDP), up from 0.9% in 2015, but far from around 3% in the early 1980s.

Finance Minister Mikael Damberg told the news conference that this year's budget of about 70 billion Swedish crowns ($7.18 billion) was 42 billion short of 2% of GDP.

Shares in domestic defence contractor SAAB (SAABb.ST), which makes Sweden's Gripen fighter jet, were up more than 7% on Thursday amid wide gains for the sector.

Russia says it is conducting a "special military operation" to demilitarize Ukraine.

NATO, of which Sweden is not a member but with which it cooperates closely, has a requirement of 2% defence spending for its members.

Sweden's neighbour Denmark, which is in NATO, has vowed to raise spending to 2% of GDP by 2033. read more

Sweden has long history of neutrality and remaining outside military alliances, but the war in Ukraine has shifted public opinion in favour of NATO membership. read more

Defence Minister Peter Hultqvist said it was too early to say how long it would take to get to 2% and that it depended on several factors, including how fast the armed forces could grow.

"We want to implement this in a systematic, realistic and feasible way. We must get the most out of every crown we spend on defence," he said.

Hultqvist said Sweden would increase security cooperation with several partners, including NATO, but also bilaterally with Finland, Britain and the United States. read more

Sweden could also increase the number of its citizens who are subject to conscription from the current 8,000 annually.

"That's one thought, there is that possibility," Hultqvist said.

($1 = 9.7509 Swedish crowns)

Reporting by Johan Ahlander, Additional reporting by Simon Johnson; Editing by Helena Soderpalm, Robert Birsel and Jonathan Oatis

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