Swedish government boosts spending as trade war hits growth

By Simon Johnson

STOCKHOLM(Reuters) -Sweden's government will raise spending by around 11.5 billion Swedish crowns ($1.18 billion) this year, on top of an earlier planned 60 billion-crown-boost, to offset a hit to growth from a trade war launched by U.S. President Donald Trump.

 Sweden's economy has struggled over the last couple of years but had been expected to pick up speed in 2025. Growth prospects have dimmed, however, in the face of new U.S. tariffs, putting rate cuts by the central Riksbank back on the agenda.

"We have a trade war," Finance Minister Elisabeth Svantesson told reporters. "We will give forecasts later, but what we can clearly state is that growth will have to be revised down."

The government had previously forecast the economy would expand 2.1% this year thanks to the effect of income tax cuts and lower mortgage rates, which had brightened the outlook at the start of 2025 for hard-pressed households.

"That temporary uptick we saw has been stopped by what's happening now," Svantesson said.

Measures in the spring budget - which traditionally does not contain major policy initiatives but minor adjustments to spending plans - included a tax break for home renovations, plus extra money for schools, road maintenance and prisons. 

The extra cash injection comes on top of a huge boost in spending following Russia's invasion of Ukraine as the government scrambles to rearm after decades in which the military has been downsized.

The military budget is set to rise to around 3.5% of GDP by 2030, while the latest package of support for Ukraine will bring Sweden's total commitment to around 80 billion crowns. 

Sweden also plans a fleet of new nuclear reactors at a cost of around 300 billion crowns as well as increases in spending on other key infrastructure to support phasing-out the use of fossil fuels from transport and industry.

While many countries in Europe face tough spending choices as they face geopolitical upheavals, Sweden's state finances are in robust shape. 

"Sweden is in a stronger position than most other countries and we have the capacity to respond, depending on developments," Svantesson said.

Sweden's government debt was around 31% of GDP against an average of about 88% across the EU, according to the latest Eurostat figures.

($1 = 9.7551 Swedish crowns)

(Reporting by Stine Jacobsen and Simon Johnson; editing by Essi Lehto, Niklas Pollard and Sharon Singleton)