STOCKHOLM (Reuters) - The euro zone crisis will carve a bigger hole than expected in Sweden's still relatively robust public finances, its debt office said on Wednesday, as the country's benchmark borrowing costs rose from record lows at a bond auction.
The office said the country would run sharply higher budget deficits this year and next, though state accounts were still showing resilience in the face of the turmoil.
It forecast a central government fiscal gap of 32 billion crowns ($4.51 billion) this year and of 15 billion crowns in 2013.
Swedish borrowing costs rose on the news, with ten-year debt yields inching up to around 1.615 percent by 0830 GMT from 1.597 percent earlier..
"The deficits were considerably larger than we had expected, we had only expected marginally changes compared with the last forecast," Sanna Eckardt, analyst at SEB said.
"Because of this we will see an increased issuing of bonds and the markets yields have (already) been pushed upwards."
The office's March forecast had foreseen a deficit of 11 billion crowns this year and a surplus of 3 billion in 2013.
It said that, with the economic growth rate expected to slow to 1 percent this year, government borrowing would rise by 9 billion crowns to 59 billion crowns.
Also on Wednesday, the country sold all 2.5 billion crowns on offer at an auction of 10- and 27-year bonds, though the yield rose on the shorter maturity [ID:nS3E8GE00Y].
STILL A SAFE HAVEN
But the 10-year yield still came in below 1.6 percent, ultra-low in historical terms and supporting the debt office's relatively upbeat assessment of the health of state coffers.
"Despite the on-going crisis in Europe, Swedish public finances are showing resilience," the Office said, noting that the deficit this year would stay below 1 percent of economic output.
Government debt was expected to be around 33 percent of GDP by the end of the year, also well below the European average, and to decrease in coming years.
Sweden has been pursuing a modestly expansionary fiscal policy to offset the slump across Europe, a sharp contrast to much of the continent where austerity measures are likely to crimp growth for years to come.
The economy has slowed sharply since last year, though first quarter gross domestic product surprised on the upside. Most economists expect Sweden to escape recession this year.
The Debt Office said it expected growth to accelerate to 2.3 percent in 2013, lower than it forecast in March.
