This chapter discusses the key challenges facing the Swedish economy. It reviews its performance since the crisis of the early 1990s, including the remarkable surge in productivity in the business sector. Next, it looks at the labour market and the reasons why employment has not recovered to its pre-crisis level. Sweden’s key challenge is then discussed: how to maintain the core of its welfare system despite a greying population. Public finances will be squeezed from several quarters: a higher demand for social services as people get older; a reduction in the share of the population that is working; and ongoing tax pressures caused by globalisation and economic integration in Europe. The first solution is to increase labour supply by reducing sickness absences, raising average hours of work and increasing the employment rates of those groups where participation is still relatively low; the second solution is to improve value for money in public services. The chapter concludes by discussing the tradeoff between equality and other social objectives.