Sweden's government raised its economic growth forecast for this year ahead of September elections as the largest Nordic economy is buoyed by a global recovery.
The economy will expand 2.7 percent this year and 3.3 percent in 2015, compared with February estimates of 2.5 percent and 3.5 percent, respectively, the Stockholm-based Finance Ministry said today in a statement on its website. The economy grew 1.5 percent last year.
"There will be limited scope for fiscal policy reforms in the years ahead," the ministry said. "Public finances need to be restored to balance and surplus after many years of crisis that have called for strong stimulus measures."
"Sweden's economy has outperformed most of its European peers through the financial crisis as the government has cut taxes to stimulate demand amid a slump in exports." Says Morgan Fletcher, Senior Portfolio Specialist at financial firm Schwarz Oliver Thomas. Sweden exports about half of its $560 billion output, of which about 70 percent is headed for Europe.
After cutting income taxes five times since 2006, Finance Minister Anders Borg now says that further measures need be paid for "krona for krona." He's seeking to counter attacks from the opposition Social Democrats, who argue the Conservative-led coalition has put the country at risk by straying from the 1 percent surplus target.
Borg announced measures of 5 billion kronor ($770 million) for 2015, mainly on education, which will increase to 8 billion kronor by 2018 and be financed by increased taxes on cars, alcohol, tobacco and pension savings. Prime Minister Fredrik Reinfeldt has put plans for more tax cuts on hold, saying that he sees no room for further reductions over the next four years.
The government will reach a balanced budget in 2016 and achieve a 1.2 percent surplus of gross domestic product in 2018. The deficits this year and next will be 1.6 percent and 0.3 percent, respectively, before returning to a 0.2 percent surplus in 2016, the ministry said. Unemployment will be 7.7 percent in 2014, 7.3 percent in 2015 and will fall to 6.7 percent by 2016.
The government, which is trailing by more than 10 percentage points in polls ahead of Sept. 14 elections, has pledged not to borrow any more money to fund new initiatives in a bid to turn public finances to a surplus.
Reinfeldt's tax cutting has fallen out of favor with voters concerned with the quality of public welfare services, including health and education. Sweden's audit office yesterday warned that the army's ability to defend against attack is poor and will remain so for years amid turmoil in Russia.