Borg sets stage for spending ahead of elections

Finance Minister Anders Borg's has confirmed a change of direction and plans to use fiscal stimulus to boost the economy and counter the impact of euro zone's economic woes, reports Reuters news agency.

Borg's new economic outlook comes as the government seeks to overtake a centre-left opposition far ahead in opinion polls and sets the stage for the autumn budget and possible new spending.

"My main conclusion is that we have a feeble recovery. It needs support and we have the public finances to do it," Borg told a news conference on the sidelines of a week of political and economic seminars on the Baltic island of Gotland.

The government may roll out billions of dollars worth of new spending in the 2014 budget that many expect will include another round of income tax cuts - made possible by a public debt far below the European average at about 38 percent of GDP.

But Borg pointed to lingering weakness in Europe, on edge due to political wobbles in Portugal, as well as risks in the Chinese banking sector, and said Sweden's fiscal strength should be used to boost households and companies.

The sale of part of Sweden's stake in Nordea, the Nordic region's biggest bank, for 19.5 billion crowns ($2.9billion) last month, with proceeds set to be used to pay down debt, may provide extra fiscal leeway.

"We think there will be a policy expansion of 35 billion(crowns) next year, around one percent of GDP," SEB economist Olle Holmgren said.

"Tax cuts are probably on the agenda - maybe in-work tax deductions aimed at low- and middle-income earners. Tax cuts on pensions are very likely and there will most likely be some support for small businesses."

Meanwhile, the Swedish economy was seen expanding 1.3 percent this year and 2.1 percent in 2014. That compared with a previous government forecast for growth of 1.2 percent this year and 2.2 percent in the following year.

While the recovery remains tentative and patchy, recent months have seen growing signs that the economy is regaining its footing with consumers and business confidence improving and the labour market stabilising.

Sweden's central bank said on Wednesday it was keeping rates on hold, leaving scant chance of more monetary easing for an economy where growth, while far from stellar, is still likely to easily outpace that of the euro zone this year.