Economy a hot issue ahead of upcoming September 19 elections.

• Sweden's unemployment plunges to 8 percent
• Sweden dramatically hikes growth forecast

Prospects for Sweden's economy, a hot issue ahead of upcoming September 19 elections, are looking bright thanks to exports, domestic demand and strong public finances, banks and the country's financial management authority said on Tuesday.

SEB bank said that the Swedish economy has provided "upside surprises in recent months."

It forecast that Swedish gross domestic product (GDP) to grow 4.7 percent in 2010, then decelerate to 2.9 percent in 2011 and 2.3 percent in 2012.

"Lower interest rates, tax cuts and a rapid upturn in exports -- combined with the absence of falling home prices -- have made possible a strong rebound in both output and employment after the deep recession," it said.

In its latest forecasts published less than a month ahead of the country's next elections, Sweden's centre-right government, which is hoping to win a second four-year-term on the back of a strong economic recovery, forecast a 4.5-percent rise in Swedish GDP this year and a 4.0-percent rise in 2011.

It also lowered its unemployment estimate to 8.5 percent for all of 2010 and to 8.0 percent next year.

SEB also forecast on Tuesday that the unemployment rate, which dropped significantly to 8.0 percent in July from 9.5 percent in June, would continue to fall.

Sweden's national financial management authority meanwhile said it expected the government's finances to be balanced next year, and noted the country's economy was recovering more rapidly than previously expected.

"This year the central government budget shows a deficit, but balance is already attainted next year," it said in a statement.

"Further ahead on the forecast horizon, the surpluses get very large and the surplus target is exceeded," it added.

Nordic bank Nordea said on Monday that it expected Swedish public finances to be balanced as early as this year and also said that the labour market was improving.

It expected Sweden's GDP to grow "more than 4.0 percent" this year, with its export industry benefiting from a pick-up in global trade.

"Even if the international economy slows down, domestic demand in Sweden will contribute to sustaining growth," Nordea said.

Sweden's economy, which was hard-hit by the global financial crisis but which emerged from recession in the second quarter of 2009, is today considered one of the strongest in Europe.