* Announces 31.85 bln SEK ($4.6 bln) '10 spending measures
* Sees need for expansive budget as tepid recovery seen
* Finance Minister Borg says growth could exceed forecasts
* But Borg says sees Baltics as biggest risk (Adds opposition comment, background)
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 tentative signs of economic recovery.
The government stuck to its most recent forecasts for the economy of 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.
Analysts said the government was taking an excessively pessimistic view of the near-term outlook so it could get more political mileage if economic fortunes brightened.
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 he presented the budget bill.
After enduring its worst contraction since World War Two in the first quarter, the Swedish economy limped out of recession in the following three months with gross domestic product growing ever so slightly quarter-on-quarter.
Public finances have also begun to recover, leaving Prime Minister Fredrik Reinfeldt's government with the fiscal muscle to roll out more stimulus measures to ensure the recovery is not nipped in the bud.
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.
WOOING VOTERS
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 the Social Democrats who were in power for six of the past seven decades.
On Saturday, the government said it would cut income taxes 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.
The opposition criticised the government's approach.
"We want to see long-term investments in welfare, not just short-term measures," Social Democrat economic policy spokesman Thomas Ostros said.
"The financial deficit is rising from 70 billion crowns this year to 107 billion next year. There is no room for tax cuts financed by borrowing," Ostros said.
POLITICAL FORECASTS
Finance Minister 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 said.
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, an economist at Handelsbanken.
"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 and Maureen Bavdek)