Sweden has an urban industrialized economy based primarily on extensive forests, rich iron-ore deposits, and abundant waterpower resources. Although more than 90 percent of Swedish industry is privately owned, the government exercises substantial control over the economy to moderate economic fluctuations. The national budget in 1998 included revenues of $90.9 billion and expenditures of $99 billion. Although Sweden enjoys one of the world’s highest standards of living, the country has experienced a serious recession since 1991. The Swedish government has responded with austerity measures and a reassessment of its traditional commitment to full employment and the welfare state. Steps taken include a 10 percent reduction in civil service employment.

Sweden's gross national product (GNP) per capita is among the highest in the world, but so are its taxes. Most enterprises are privately owned and market-oriented, but roughly 60 percent of the gross domestic product (GDP) passes through the public sector if transfer payments, such as pensions, sick pay, and child allowances, are included. Government involvement in the distribution of national income, however, has lessened since 1983. With the value of exports amounting to 30 percent of its GDP, Sweden is highly dependent on free international trade to maintain its living standard. In 1991 Sweden attached its currency to the European Currency Unit (ECU) and applied for full membership in the European Community (EC). Sweden also has to cope with problems of competitiveness that have caused industry to invest much more abroad than at home. Most of Sweden's large industrial companies today are transnational, and some employ more people abroad than in Sweden, where production costs are high.

Aided by peace and neutrality for the whole twentieth century, Sweden has achieved an enviable standard of living under a mixed system of high-tech capitalism and extensive welfare benefits. It has a modern distribution system, excellent internal and external communications, and a skilled labor force. Timber, hydropower, and iron ore constitute the resource base of an economy heavily oriented toward foreign trade. Privately owned firms account for about 90% of industrial output, of which the engineering sector accounts for 50% of output and exports. Agriculture accounts for only 2% of GDP and 2% of the jobs. In recent years, however, this extraordinarily favorable picture has been somewhat clouded by budgetary difficulties, high unemployment, and a gradual loss of competitiveness in international markets. Sweden has harmonized its economic policies with those of the EU, which it joined at the start of 1995. GDP growth is forecast for 4% in 2001.