Sweden to Raise Borrowing as Recession Looms

Sweden raised its estimate for the government’s borrowing need in 2012 as the largest Nordic economy struggles to avert a recession amid growing unemployment.

The National Debt Office increased its estimate for sales of nominal bonds this year to 50 billion kronor ($7.5 billion) from the 35 billion kronor predicted in October, according to a statement published today in Stockholm. The agency also said it expects to issue 53 billion kronor in nominal bonds in 2013, 20 billion kronor more than estimated in October.

“Weak domestic demand and weak demand in our key export markets are reducing growth prospects this year and unemployment is rising,” the agency said. “This affects central government finances through reduced tax revenues and increased labor market expenditure.”

The largest Nordic economy shrank 1.1 percent in the fourth quarter, its first contraction since 2009, as the European debt crisis weighed on exports and companies cut jobs. Unemployment (SWUERATE) will average 7.7 percent this year, up from 7.5 percent last year, the central bank predicted last month as it cut interest rates for a second consecutive meeting.

The agency said it expects the government to post a deficit of 11 billion kronor this year and a surplus of 3 billion kronor next year. Total central government borrowing will be 33 billion kronor higher this year and 27 billion higher next year than previously forecast, the debt office said.

Debt Issuance

Funding in Treasury bills will “be greater” and borrowing in foreign currency will “increase somewhat, due to our funding a larger part of on-lending to the Riksbank on the bond market,” the debt office said.

The agency in October predicted central government finances would show a 25 billion kronor surplus this year and 29 billion kronor next year. The country reported a 68 billion-krona surplus last year, reducing central government debt to 32 percent of gross domestic product, even as other nations in Europe struggled with rising debt levels.

Sweden had reduced its debt after the economy expanded at the fastest pace in 40 years in 2010, attracting demand for its AAA rated bonds as investors fled the euro area.

Sweden’s bonds maturing in more than 10 years were last year the best performing bonds among major indexes tracked by Bloomberg, returning 31 percent in local currency, according to Bloomberg/EFFA sovereign indexes. U.S. debt maturing in 10 years or more returned 29 percent, the index showed.

This year, Swedish bonds with a maturity of 10 years or more have slid 2.8 percent. Sweden’s 10-year note yields three basis points more than its benchmark German counterpart, after last year yielding as much as 64 basis points less. The spread widened one basis point today.

The agency predicted economic growth of “just under” 1 percent this year and “just under” 3 percent next year. Growth was 3.9 percent in 2011.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.

To contact the editor responsible for this story: Jonas Bergman in Stockholm at jbergman@bloomberg.net

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