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UPDATE 1-Swedish government foresees milder downturn in 2020

* 2020 GDP seen down 4.6% vs pvs forecast 6.0% fall

* Full year seen better than most of Europe

* Fin Min promises 100 bln SEK in spending in 2021 budget (Adds detail, finance minister quote, background, graph)

STOCKHOLM, Aug 27 (Reuters) - Sweden’s economy will contract around 4.6% this year, Finance Minister Magdalena Andersson said on Thursday, in a fresh forecast that pointed to a milder downturn than in much of Europe.

Sweden’s economy was hit hard in the second quarter by efforts to fight the coronavirus pandemic, shrinking 8.6% from the previous quarter. But activity has started to pick up and the effects of the downturn look less severe than previously feared.

“The economic situation is looking a little brighter compared to our assessment in June,” Andersson told a news conference.

The government forecast in June that the economy would shrink around 6% this year.

Sweden’s response to the COVID-19 outbreak differed from most of Europe, relying mainly on voluntary social distancing. Most schools and many businesses remained open.

It looks as if Sweden’s economic contraction will match the downturn during the global financial crisis of 2008-9, but won’t be as severe as most of Europe’s. European Union GDP is expected to fall around 8%, Britain’s around 11%.

The outcome for Sweden is roughly in line with forecasts for its Nordic neighbours, despite the much tougher measures they took to fight the pandemic.

Andersson said the economy would need further support next year and in 2022 and 2023, promising around 100 billion crowns ($11.46 billion) of spending in the budget to be presented at the end of September.

“We are going to have a big negative GDP gap, low resource utilization during the whole of this forecast period, so we should not tighten policy too early,” Andersson said.

The Social Democrat-Green coalition government introduced a raft of policies to fight the pandemic, promising to spend about 300 billion crowns this year. But the improved economic outlook has led the government to cut its forecasts for such measures as subsidies for companies offering workers shorter hours.

Andersson said the better economic development would mean a deficit in public finances of around 5.6% of GDP this year, compared with its June forecast of 7.8%. ($1 = 8.7251 Swedish crowns)

Reporting by Simon Johnson and Johan Ahlander; editing by Anna Ringstrom, Larry King

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