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Sweden Sets Budget Stimulus as Euro Crisis Saps Growth

Sweden presented a stimulus budget as eroding demand from the crisis-riddled euro area stymies growth in the largest Nordic economy.

Sweden will post a 0.3 percent deficit of gross domestic product this year and 0.6 percent in 2013, the government said in its budget for 2013 handed out to reporters today in Stockholm.

“We’re in a difficult international economic environment and now that Sweden has proved more resilient we have prioritized investments for the future,” Finance Minister Anders Borg said. The risk for weaker economic developments is dominant in the main scenario, the ministry said.

The government estimates next year’s budget initiatives will boost growth by 0.4 percentage point and raise employment by 17,000 jobs in 2014. The central bank last week cut its main rate for a third time since December to 1.25 percent as the economy slowed more than estimated last quarter amid weakening European export demand. Sweden sells about half of its output abroad, of which about 70 percent go to Europe.

The government said today that economic growth will be 1.6 percent this year and 2.7 percent next year, repeating earlier forecasts. Inflation will average 1 percent in 2012 and 1.2 percent in 2013, while unemployment will average 7.6 percent and 7.5 percent, it predicted.

The krona weakened 0.1 percent to 8.503 per euro. Sweden’s 10-year yield fell three basis points to 1.55 percent.

Corporate Tax

Borg last month said the government will spend 23 billion kronor ($3.5 billion), or about 0.7 percent of GDP, on new initiatives next year after criticism from the Social Democrat-led opposition that it’s not using its fiscal strength to stimulate growth and cut unemployment.

The government will cut the corporate tax for a second time since 2009 to 22 percent from 26.3 percent and the tax on pensions for a fourth time since coming to power in 2006. It also plans to boost spending on research and development, investments in roads and railways and programs to cut youth unemployment to boost the potential of the economy before elections in 2014.

The four-party government coalition, which was elected for another four years in 2010, is trailing the opposition in polls half way through its current term, even after cutting Sweden’s public debt ratio every year since 2009, The debt level will reach 35.6 percent of gross domestic product this year, the European Commission estimates. That compares with an average burden of 91.8 percent in the 17-member euro area in 2012, according to the commission.

Sweden’s economy, home to companies such as Ericsson AB, the biggest mobile systems maker, and Volvo AB, the second-largest truck maker, grew less than first estimated in the second quarter at an annual 1.3 percent, down from an earlier estimate of 2.3 percent.

The government has cut income taxes four times, reduced unemployment and sickness benefits, and abolished the wealth tax to increase the incentive to work since 2007. It has delayed plans for another income tax cut to safeguard public finances.

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