Economic growth in Sweden remains dynamic with domestic demand increasingly complementing net exports. With growth accelerating in 2006 to close to 4%, the output gap turns positive. At the same time, inflation remains very low despite the cyclical upswing, partly reflecting productivity gains but probably also factors related to global competition. Fiscal policy will add stimulus to an already vibrant economy in 2006. An expansionary monetary policy is fuelling the boom in investment and is also driving increases in property prices. Over the projection period, the central bank should increase policy rates to at least neutral levels and the fiscal stimulus should be withdrawn.