STOCKHOLM: Sweden's centre-right government trimmed on Monday its forecasts for growth this year and next in a budget bill thin on new spending, underscoring its image as a prudent guardian of public finances that are already among the strongest in Europe.
Prime Minister Fredrik Reinfeldt's ruling alliance predicted a slim public sector deficit this year, and suggested it would rely on further interest rate cuts by the central bank during the course of 2012 to stimulate the economy.
The coalition, which has ruled as a minority government since elections in 2010, forecast growth of 0.4 percent this year and 3.3 percent in 2013. This compared with forecasts in September of 1.3 percent and 3.5 percent respectively.
Finance Minister Anders Borg had said in February he saw growth at around 0.5 percent this year.
"The Swedish economy is expected to slow down markedly in 2012 in the wake of the European debt crisis," the government said in a statement.
"Given the risk of significantly weaker economic growth, the need remains for good safety margins in the public finances so as to continue to have the capacity to cushion the impact of a deeper crisis on jobs and welfare."
This meant there would be "limited" scope for reforms in the budget for 2013, it added. Instead, the government forecast that the legally independent central bank will cut its key repo rate to 1.00 percent by the end of the year from the current 1.50 percent.
The Riksbank is expected to keep monetary policy on hold at its meeting on Tuesday and has forecast it will keep interest rates at the present level into 2013 but go no lower. The rate decision will be unveiled on Wednesday.
"They made a revision (of growth estimates) that was expected though we think there is still a downward risk here," Nordea economist Annika Winsth said.
"What breaks the mould is that they expect the Riksbank to cut interest rates to 1 percent. In light of the fact that households are doing all right, that is a pretty hefty forecast."
DRY POWDER
The cabinet had been widely expected to hold off on any major new spending with an eye to elections due in 2014.
A large measure of uncertainty over the extent of Sweden's slowdown as the euro zone sovereign debt crisis weighs on demand in the Nordic country's biggest export market has also given reason for the government to keep its powder dry.
Swedish economic indicators have offered conflicting signals in recent weeks, with some confidence indicators improving firmly while industrial production suffered its worst fall in more than two years in February.
Sweden's public finances are among the strongest in Europe, although the slowdown due to the euro zone crisis is expected to weigh on growth and tax revenues this year. Sweden has not needed the harsh austerity measures seen elsewhere in Europe.
The government said it expected a fiscal deficit of 0.3 percent of gross domestic product this year and a 0.3 percent surplus in the following year. It had previously seen a balanced budget in 2012 and a 0.7 percent surplus in 2013.
Last week, the governing Alliance coalition unveiled the main new reform of its spring budget, tax breaks and other measures worth 1.75 billion crowns ($257.86 million) over the coming years to boost housing supply.
The leaders of the four parties in the bloc Reinfeldt's Moderates, the Liberals, Centre Party and Christian Democrats had also held out the prospect of cutting corporate taxes but saw no need of broad stimulus on account of the euro zone crisis.
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