* Announces 31.85 bln SEK ($4.6 bln) 2010 spending measures
* Sees need for expansive budget, forecasts higher rates
* Finance Minister Borg says growth could exceed forecasts
* But Borg says sees Baltics as biggest risk
(Adds minister's comments, analyst reaction, details)
By Johan Sennero and Niklas Pollard
STOCKHOLM, Sept 20 (Reuters) - Sweden's centre-right government, hoping to ride a wave of stimulus measures to re-election next year, announced on Sunday extra spending plans to underpin the tentative signs of economic recovery.
The government stuck to its most recent forecasts for the economy, predicting a 5.2 percent contraction this year and just 0.6 percent growth in 2010. The economy is not seen taking off before 2011, when a 3.1 percent expansion is predicted.
Finance Minister Anders Borg characterised the budget as a prudent response to tough times.
"We are signing an insurance policy against long-term and extensive injuries to the Swedish economy from this financial crash," Borg told reporters as the government presented its budget bill.
The budget includes 31.85 billion Swedish crowns ($4.6 billion) in unfinanced spending next year and some 46 billion crowns of such spending in the following two years.
"We have a very difficult economic situation," Borg said.
"The economy is contracting 5 percent and unemployment is rising. In this situation you should have an expansive economic policy that is compatible with a long-term balance in the public finances."
The fiscal balancing act comes ahead of elections due in September 2010. Opinion polls in recent months have shown the coalition neck-and-neck with the opposition led by Social Democrats, in power for six of the past seven decades.
On Saturday the government said it would cut income taxes by a total of 10 billion crowns from next year in a move it said would boost employment.
Yet tax cuts in egalitarian-minded Sweden are not necessarily a sure-fire vote winner. Swedes have shown themselves to be largely content over the years to suffer some of the world's highest taxes in return for extensive benefits and public services.
POLITICAL FORECASTS
Borg said there was a chance the recovery could be stronger than currently forecast.
"Recently there have been signs that the Swedish and the global recovery may be faster and stronger than what is assumed in the main scenario," Borg said in the budget document.
But he also identified a key danger: the Baltic region, where Swedish banks have advanced billions of euros worth of loans and face massive defaults as the economy there suffers a huge contraction.
"The Baltics are the gravest risk," he told a news conference.
Economists said the forecasts looked more glum than current conditions warrant, but that could be down to politics.
"It's a very pessimistic forecast. I would have assumed they would have raised the GDP forecast much more considerably," said Stefan Hornell, economist at Handelsbanken.
"In our forecast from August we had a 2.0 percent (GDP forecast) for 2010 and were considering revising that upwards.
"I think it's probably a bit of a political forecast. You have an election next year and when it comes the spring the government would very much like to revise its forecast in a more optimistic way. Then they can say, 'thanks to our reforms, growth has taken off'." ($1=6.899 Swedish crowns) (Editing by Greg Mahlich)