"The Swedish economy has shown an unexpectedly strong development", Finance Minister Anders Borg said as he raised the country's economic growth forecast.

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The Swedish government said Friday the country's economy had shown "unexpectedly strong development," prompting it to dramatically hike its growth forecast to 4.5 percent this year and 4.0 percent in 2011.

In its previous estimate at the end of June, the government said it expected Swedish gross domestic product (GDP) to grow 3.3 percent this year and 3.8 percent next year.

"The Swedish economy has shown an unexpectedly strong development during the first six months of the year," the finance ministry said in a statement.

"The unexpectedly strong and broad recovery, combined with increasingly optimistic hope for the future among households and companies and an improved situation abroad has led the finance ministry to increase its gross domestic product forecast for this year and next," it added.

Swedish Finance Minister Anders Borg meanwhile cautioned that "large risks remain, especially if one looks abroad where many countries are dealing with considerable difficulties in their public finances."

"The government therefore wants to remain careful. Returning to a surplus is our highest priority so we can defend Sweden against new threats," Borg said in the statement.

The finance ministry also said it expected to post a smaller than expected budget deficit this year of 1.1 percent, compared to the previous forecast of 1.5 percent.

In 2011, the budget deficit would shrink further, it said, to just 0.2 percent, before turning to a surplus of 1.1 percent a year later.

Unemployment was expected to tick in at 8.5 percent this year before dwindling to 8.0 percent next year and 7.4 percent in 2012, the ministry said.

The new forecasts were published just a month ahead of Sweden's September 19 elections, with the centre-right government hoping a strong economic recovery will help it win a second four-year term.

The country'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.