(Bloomberg) -- The Swedish government plans to boost spending next year as slowing inflation gives more fiscal room to help the largest Nordic nation’s faltering economy.
The center-right cabinet will increase outlays by 60 billion kronor ($5.9 billion) in 2025, Finance Minister Elisabeth Svantesson told a news conference in Harpsund, Sweden, on Thursday, without providing a forecast for overall budget balance.
The plans are a stark contrast with the past year as the conservative Moderate-led government has been forced to hold back spending to not fuel price growth. The ruling coalition has drawn much ire from some of its staunchest grassroots supporters after it steered away from its usual tax-cutting stance due to high inflation, which reached 9.7% two years ago when it came to power.
“We have worked hard to push inflation down and we are finally there,” Svantesson said. “It feels very good.” She added the priorities include helping the households recover their purchasing power, investments in infrastructure, research and education, and policies to boost growth and productivity.
The government announcement comes mere days after the Riksbank announced its second cut in key interest rate this year to 3.5%, flagging it may continue to reduce borrowing costs at all of its remaining three meetings this year.
A string of recent data has indicated the expected Swedish recovery still isn’t materializing, including manufacturing output contracting last month and a preliminary estimate showing that economic output contracted in the second quarter.
The finance ministry cut its forecast for this year’s economic expansion to 0.9%, on calendar-adjusted basis, versus the previous forecast of 1.4% gain, published in June. The economy is seen growing 2.8% next year, compared with the June forecast of 2.7%, it said. Inflation is seen at 1.9% this year and 1.7%, same as projected in June.
“The Swedish economy is in a recession, but recovery is on the horizon,” the finance ministry said in a statement.
(Updates with details, background from second paragraph.)
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