Luxembourg flag Luxembourg: Economic outline

Economic Outline

Economic Indicators

Luxembourg’s economy is characterized by its financial system and a high degree of international openness. The financial sector is the main driving force behind the Grand Duchy’s economy, representing about one-third of the country’s GDP, making Luxembourg vulnerable to external shocks. After growing 1.4% in 2022, Luxembourg's economy experienced a notable slowdown in 2023, characterized by a contraction in GDP during the second and third quarters. According to the latest estimates from the EU Commission, overall economic activity declined by 0.8% during the year, primarily influenced by contractions in the financial services and construction sectors. However, private consumption, supported by reduced inflation and government assistance measures, along with public consumption, bolstered domestic demand. In 2024, economic activity is anticipated to rebound, with GDP growth projected at 1.5%. Private consumption is forecasted to be sustained by diminishing inflationary pressures, increasing wages, reduced personal income tax, and a gradual relaxation of financing conditions over the forecast period. Looking ahead to 2025, economic growth is poised to accelerate further, reaching 2.4%. Private consumption is expected to remain supportive, particularly as energy and food prices are projected to continue easing.

Luxembourg is the wealthiest country in the world in terms of GDP per capita (PPP) and has the highest current account surpluses as a share of GDP in the eurozone. Luxembourg benefits from substantial fiscal space owing to its low level of public debt and comfortable liquidity position. It generally maintains a healthy budgetary position; however, the budget deficit turned negative in 2023 (-0.2% of GDP) due to energy support measures outlined in the Solidaritéitspak 3.0, which was extended until end-2024. The IMF projects a widening deficit to 1.1% over the forecast horizon. The public debt level is among the lowest in the region, though it increased to 27.6% in 2023 according to the IMF, with an upward trend projected this year and in 2025 (29.3% and 30.2%, respectively). HICP inflation dropped to 2.9% in 2023, primarily due to reduced energy prices. Despite three rounds of wage indexations being triggered, there was a slowdown in the inflation of services' prices. For both 2024 and 2025, one round of wage indexation is projected, with inflation expected at 2.6% and 2.3%, respectively (EU Commission). In recent years, the country has implemented a policy of legal reforms to respond to criticism regarding the lack of transparency of its financial center and its fiscal dumping policy towards multinationals. Luxembourg is cooperating with other countries to fight against fraud and fiscal evasion. Introducing an automated exchange of fiscal information among states has put its banking secrecy de facto to an end. The country was taken off the list of uncooperative tax havens, established by the Global Forum on Transparency and Exchange of Information for Tax Purposes.

After rising following the outbreak of the pandemic, unemployment decreased to 4.8% in 2022, but picked up to 5.2% last year, with a further uptick expected in 2024 (5.8% as per the IMF). The working opportunities attract a large number of border workers: almost 200,000 workers cross every day the French, Belgian, and German borders. Despite being the countries with the highest income per capita (USD 142,214 at PPP in 2022 – World Bank), around 17.4% of residents live below the poverty line, according to the latest data available from Statec (in Luxembourg, the poverty line is calculated at 60% of the median standard of living, i.e. EUR 2,247 per month per adult).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 81.7189.1094.0399.09103.77
GDP (Constant Prices, Annual % Change) 1.4-0.41.52.42.5
GDP per Capita (USD) 126,598135,605140,308144,960148,829
General Government Balance (in % of GDP) 1.0-0.2-1.1-1.1-0.8
General Government Gross Debt (in % of GDP) 24.827.629.330.230.4
Inflation Rate (%) n/a3.23.32.22.0
Unemployment Rate (% of the Labour Force) 4.85.25.85.95.8
Current Account (billions USD) 2.963.283.794.104.36
Current Account (in % of GDP) 3.63.74.04.14.2

Source: IMF – World Economic Outlook Database, 2016

Note: (e) Estimated Data

 
Monetary Indicators 20152016201720192020
Euro (EUR) - Average Annual Exchange Rate For 1 GBP 1.431.271.141.111.12

Source: World Bank, 2015

 

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Latest Update: May 2024

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