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UPDATE: Sweden Adds $1 Billion More To 2009 Stimulus

Published: 08 Dec 2008 01:59:10 PST

STOCKHOLM --Sweden Friday outlined a 8.3 billion Swedish kronor ($1 billion) fiscal stimulus package for 2009, to complement earlier spending plans, in a measure aimed at further propping up the country's teetering economy in the face of a sharp global economic slowdown.

The move comes a day after the Swedish Riksbank delivered its biggest rate cut in 16 years, and answers mounting calls from market-watchers to charge up an export-oriented economy that's already in recession from the global crisis and has shed some 10,000 jobs in recent weeks.

The center-right government said Friday's package will be aimed at boosting resources to help the unemployed find new jobs, infrastructure spending, lowered employer fees for hiring long-term unemployed, and tax breaks for home-improvement work.

Friday's package will complement the SEK32 billion already laid out in September in the government's 2009 budget proposal, which includes funding for income tax cuts.

While welcomed, the deal quickly drew criticism as too weak an effort against such powerful global economic headwinds.

"While the type of measures seem quite well-balanced, we are surprised by the rather modest amount of measures," said Anna Raman, senior economist at Handelsbanken.

Economists at SEB calculated Friday's measures at 0.3% of gross domestic product, making the combined value of the stimulus, together with the plans presented in September, equal to 1.5% of GDP.

Critics also note the government didn't answer widespread calls for temporarily higher government payments to, for example, the unemployed, parents, and pensions.

Nor did Friday's plan tackle value-added tax cuts or emergency aid to carmakers Volvo and Saab, as some had hoped for.

"The government continues to reject calls for large measures to temporarily stimulate general household income, for example (with) temporarily increased transfers or a temporary VAT cut," said SEB.

Swedish Prime Minister Fredrik Reinfeldt said he's doing all he can to combat the "deep" downturn that awaits.

"This is the most powerful stimulus of any economy in all of Europe," said Reinfeldt to reporters Friday.

The prime minister included so-called "automatic stabilizers," such as unemployment payments which rise in downturns as more people claim benefits, as part of what he considers a stimulus.

That means Sweden's plan, including the stabilizers, comes close to 3% of GDP, which will be the biggest in Europe as percentage of total GDP and well above the European Commission's recommendation for 1.2% of GDP, said Reinfeldt.

Economists question whether it's correct to count the automatic economic stabilizers as a stimulus.

Regarding bailout money to the struggling carmakers Volvo and Saab, which employ roughly 20,000 people in Sweden, Reinfeldt didn't rule out aid.

But he said the state didn't have any interest in becoming car manufacturing owners, and that he's awaiting news from the U.S. on potential emergency funds to General Motors Corp. (GM) and Ford Motor Co. (F), which respectively own Saab and Volvo, before coming to any decision on aid to the Swedish units of the companies.

Government Web site:

-By Joel Sherwood, Dow Jones Newswires; +46 85 45 13 092;

(Ian Edmondson contributed to this report.)

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