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Sweden Sees Faster Recovery in 2014 as Stimulus Room Grows

Sweden’s government said the largest Nordic economy will expand faster than previously estimated next year as it steps up stimulus plans ahead of 2014 elections.

The $540 billion economy will grow 1.2 percent this year and 2.5 percent in 2014, compared with July forecasts of 1.3 percent and 2.1 percent, respectively, the Finance Ministry said today in a statement handed out in Harpsund, south of Stockholm.

“We will use the strength of our public finances to energize and support a recovery,” Finance Minister Anders Borg said. “We’ll maintain safety margins. Laying a firm foundation for recovery is key to driving unemployment down.”

Prime Minister Fredrik Reinfeldt last week pledged his fifth round of income-tax cuts since taking power in 2006. The economy shrank 0.1 percent in the second quarter, the first contraction in more than a year, as Sweden’s exporters struggled with falling demand from the debt-laden euro area.

Borg said today that the government in total has 25 billion kronor ($3.8 billion) for tax cuts and other measures next year.

The government is forecasting a weaker recovery than the Riksbank, which in July predicted growth of 1.5 percent this year and 2.8 percent in 2014. First Deputy Governor Kerstin af Jochnick said yesterday the economy is “heading in the right direction” amid “bright spots” in Europe and the U.S.

Rates Hold

Sweden’s central bank last month kept its benchmark rate unchanged at 1 percent and predicted it would remain here until the second half of next year to allow the recovery to unfold.

The euro zone surfaced from a record-long recession last quarter, expanding for the first time since 2011. Data in Sweden, home to Volvo AB, the world’s second-biggest truckmaker, has sent mixed signals, with consumer confidence rising to a two-year high last month as unemployment slid to 7.8 percent, the lowest since June last year.

Unemployment will rise to 8.2 percent this year from 8 percent in 2012 and then decline to 8.1 percent next year, the government predicted. Inflation will slow to 0.1 percent this year and accelerate to 0.9 percent in 2014.

The budget deficit will be 1.5 percent of gross domestic product in 2013, compared with July estimates for 1.3 percent, the government said. Both are within the European Union’s 3 percent threshold. State debt will rise to 42.2 percent of GDP this year and to 42.7 percent in 2014, the government said.

Sweden, which is AAA rated, is tapping into its fiscal strength this year with about 25 billion kronor ($3.9 billion), or about 0.7 percent of GDP, in extra stimulus measures. Initiatives include investments in infrastructure, education, research and a cut in corporate taxes to 22 percent from 26.3 percent.

Krona Gains

Reinfeldt last week outlined 16 billion kronor in tax cuts for income earners and pensioners next year.

Exporters have also struggled with a surge in the krona, which last year emerged as a haven from Europe’s debt crisis. The krona traded little changed at 8.7079 against the euro, paring some earlier gains, as of 3:45 p.m. in Stockholm after rising 25 percent since the start of 2009.

Sweden’s government came to power in 2006 in a bid to reduce unemployment mainly through tax cuts. It’s trailing the three-party opposition, led by the Social Democrats, in polls ahead of the country’s next parliamentary elections in September next year.

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