The performance of the Swedish economy during the recent international slowdown has demonstrated the value of a sound macroeconomic policy approach. After Swedish voters decided not to adopt the euro for the time being, the monetary framework continues as a well-designed inflation targeting regime. The budgetary framework has delivered solid public finances, providing room for automatic stabilisers to work during the recent global slowdown, while monetary easing helped to stabilise activity without compromising price stability. In addition, tax cuts and other discretionary policy measures have helped to underpin output...

Sweden’s economic performance has remained robust despite the recent global slowdown. The macroeconomic framework put in place in the 1990s has worked well and places the country in the enviable position of being able to focus its attention primarily on addressing longer-term challenges. A large number of other OECD countries face similar challenges, often to a greater degree and from a less favourable initial position. This might tempt some in Sweden to believe that taking steps to adjust policies can be postponed to some later date, when problems have become evident and pressing...

As shown in Chapter 1, Sweden has seen strong GDP growth in the past decade, labour productivity has increased at rates well above the OECD average, and employment has improved markedly after the earlier labour shake-out. Developments in the telecommunication equipment sector have been especially impressive, whereas other sectors have lagged behind somewhat. To some extent, this slower rate of expansion in certain sectors is probably linked to insufficient pressure to compete and a resulting lack of dynamism...

Raising living standards depends on harnessing resources effectively and productively (see Chapter 1). This means not only that at any point in time inputs are allocated to their optimal uses, but also that through time, innovation and technical progress allow resources to be combined together to produce more output and ultimately a higher rate of growth. Furthermore, to realise the benefits of product market competition, resources need to be able to flow rapidly and smoothly from one use to another...

The demographic changes facing Sweden are likely to lead to significant pressure on public finances, stemming from increased spending on pensions, health and elderly care and slower increases in tax bases. As pointed out in Chapter 1, it is crucial to prepare for these pressures by reducing public debt in the current period of favourable demographics, which should last for about 15 years, if public service standards are to be maintained without leading to higher tax rates or an unsustainable debt position in the longer term. Achieving this reduction will require solid general government budget surpluses in the foreseeable future...

There is a growing concern that long-run sustainable development may be compromised unless measures are taken to achieve balance between economic, environmental and social outcomes both domestically and on a global basis. This Chapter looks at three specific issues of sustainable development that are of particular importance for Sweden: reducing air pollution and water pollution, and improving waste management. In each case, indicators are presented to measure progress and the evolution of potential problems, and an assessment is made of government policies in that area...