Swedish government cuts growth forecast, says to raise more taxes if re-elected

By Simon Johnson and Johan Sennero

HARPSUND Sweden (Reuters) - Sweden's centre-right government on Saturday delivered a gloomy message to voters ahead of a Sept. 14 general election, cutting its growth forecast due to lingering weakness in the global economy and saying it will raise taxes further if re-elected.

Sweden's economy contracted slightly in the first quarter and barely grew in the April-June period as its key export sector was hurt by sluggish overseas demand, particularly from Europe.

The euro zone has stalled and recovery there could be further hampered by sanctions against Russia imposed in July over its involvement in the Ukraine crisis.

"A weak development internationally will mean a somewhat slower recovery in Sweden," Finance Minister Anders Borg said.

"That, along with increased expenditure at the end of the next term of government, means that we must strengthen the budget," he added.

Borg cut his forecast for growth this year to 1.9 percent against a forecast in July of 2.5 percent. Growth next year is seen at 3.0 percent versus a previous forecast of 3.1 percent.

Borg said the public sector was expected to run a deficit of 2.2 percent of gross domestic product this year versus a previous estimate for a 1.6 percent shortfall.

But new tax hikes and spending cuts would ensure public finances return to a surplus target of 1 percent of GDP in 2018, he said. The taxes, whose introduction would be delayed until 2017-2018 to avoid harming the economic recovery, would target financial services and commercial property.

The four-party ruling coalition, which opinion polls suggest will lose the election to the centre-left opposition, has already outlined plans to raise duty on cars, tobacco and alcohol and to reduce tax breaks on pension savings.

(Reporting by Simon Johnson and Johan Sennero; writing by Niklas Pollard; Editing by Gareth Jones)