Sweden is recovering strongly from the recent deep recession, supported by substantial fiscal and monetary policy easing and a pick-up in external demand. A relatively accommodating monetary stance coupled with an improving labour market are expected to help sustain growth. Though Sweden’s fiscal position is enviable compared with many other countries, there is scope to further strengthen the fiscal framework. Medium-term fiscal pressures could be reduced by encouraging greater labour force participation and increasing the efficiency of public spending. Closing the income gap vis-à-vis leading OECD economies will require further labour market reforms, further tax reforms to enhance work incentives, and a reduction in the extent of public ownership in market-related activities to boost competition and productivity.