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Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Luxembourg’s economy is characterised by its fiscal 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 the country vulnerable to external shocks. After contracting following the outbreak of the COVID-19 pandemic, Luxembourg’s GDP returned to growth in 2021 (+5.5% according to the IMF), supported by private consumption and investment, as well as by the strong performance of the external sector. Assuming a normalization of the global sanitary and economic conjuncture, the IMF forecasts growth at 3.8% in 2022 and 3% in 2023.

Luxembourg is the second-wealthiest country in the world in terms of GDP per capita (the first in the EU - PPP) and has one of the highest current account surpluses as a share of GDP in the eurozone. It generally maintains a healthy budgetary position, nevertheless, the measures taken to address the pandemic, partially offset by an increase in revenues, caused the general government balance to slip into a deficit of -1% of GDP in 2021. In 2022, the general government balance is expected to turn to a surplus of 0.2% of GDP (EU Commission forecast), as revenues should continue to expand and crisis-related measures are phased out (although the IMF still sees a deficit of 0.2%). The public debt level is among the lowest in the region, though it increased to 26.3% in 2021 according to the IMF (from a pre-pandemic level of 22%). In 2022, the IMF forecasts a marginal increase to 26.7%, before the ratio returns to a downward trend in 2023 (26.8%). Higher global energy prices and the implementation of a carbon tax contributed to a rise in inflation, which stood at 2.7% in 2021. It is subsequently expected to moderate to 1.4% this year and 1.9% in 2023, as some energy price base effects fade out. In recent years, the country has implemented a policy of legal reforms to respond a criticism regarding the lack of transparency of its financial centre 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 5.6% in 2021, thanks to the government’s short-term work scheme that supported employment. The IMF expects unemployment to continue its decline in 2022 and 2023, at 5.5% and 5.4%, respectively. 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 one of the countries with the highest income per capita (USD 122,740     at PPP in 2021), around 105,000 residents live below the poverty line, according to the latest data available from Statec.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 71.1173.21e83.7789.6895.41
GDP (Constant Prices, Annual % Change) 2.3-1.3e5.53.83.0
GDP per Capita (USD) 115,839116,921e131,302137,948144,013
General Government Balance (in % of GDP) 1.9-3.1e-1.0-0.20.0
General Government Gross Debt (in % of GDP) 22.024.826.326.726.8
Inflation Rate (%) 1.70.02.71.41.9
Unemployment Rate (% of the Labour Force) 5.46.35.65.55.4
Current Account (billions USD) 3.253.14e3.943.884.04
Current Account (in % of GDP) 4.64.34.74.34.2

Source: IMF – World Economic Outlook Database , October 2021

Note: (e) Estimated Data

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

The government has been aiming at economic diversification for a few years and has been encouraging the development of sectors such as communication and information technologies, logistics, e-commerce and biotechnologies. The number of foreign citizens in the labour market outweighs the number of Luxembourgish nationals.

The agricultural sector is almost non-existent, as the country’s arable land is limited to 61,860 hectares. It contributes only 0.2% to the GDP and employs around 0.7% of the active population (World Bank, latest data available). The country's main crops are wine, wood, cereals and potatoes. According to data from Eurostat, Luxembourg’s overall agricultural output (EUR 404 million) accounts for only 0.1% of total EU output.

The industrial sector (10.7% of the GDP and 10.8% of the active population), has historically been dominated by the production of iron and steel. Numerous industrial sites of the mining district in Southern Luxembourg gave its development and its wealth to the country. In recent years, this sector has been diversified with the addition of chemical factories, plastic products and light engineering. Nowadays, the manufacturing sector represents only 4.6% of GDP (World Bank).

With the oil shock of 1973 and the crisis which followed, the Luxembourg economy turned to the development of a services economy like most developed countries. The tertiary sector (employing 88.5% of the active population) represents nearly 80.1% of the national wealth, with more than half of it attributed exclusively to financial and real estate services. Luxembourg is one of the world's largest money markets and the second-largest investment fund manager in the world. The financial sector is the economic engine of the country, representing around a third of GDP, 10% of employment and contributing 13.7% of fiscal revenues in 2020. It is the main centre of private banks in the Eurozone and home to many reinsurance companies. The Grand Duchy has sought to diversify its economy, currently over-dependent on the financial sector: it is trying to develop its assets to position itself as a centre for media and new information and communication technologies and to attract companies providing electronic services, including e-commerce. Nowadays, trade, transport, hotels and gastronomy sectors combined are the main employers (almost double the employees of the finance and insurance sectors).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 0.7 10.8 88.5
Value Added (in % of GDP) 0.2 10.7 80.1
Value Added (Annual % Change) 0.2 -4.8 -0.1

Source: World Bank - Latest available data.

 
Monetary Indicators 20152016201720192020
Euro (EUR) - Average Annual Exchange Rate For 1 USD 0.940.940.890.890.88

Source: World Bank - Latest available data.

 

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Foreign Trade

Due to its small size and its location, Luxembourg is very open to foreign trade, which represented 390.3% of its GDP in 2020 (the highest level in the world - World Bank). The country mainly exports commercial services, especially those related to finance. Concerning merchandise, the main exports are angles, shapes and sections of iron or non-alloy steel; motor cars; tyres; and sheet piling of iron or steel; whereas imports are led by cars, petroleum oils, ferrous waste and scrap, and medicaments (Comtrade, latest data available).

Luxembourg is very dependent on its EU partners: almost 80% of total imports of goods came from other member states, and trade activities with its three neighbouring countries represented more than 50%. Its main customers are Germany (26%), France (16.3%) and Belgium (12.4%); the main suppliers being Belgium, Germany and France, which account for 24.3%, 24.1% and 10.7% of total imports, respectively. Luxembourg is trying to diversify its exports outside the European Union, and the country currently has significant trade relations with Asian and Middle Eastern nations.
 
 
In 2020, the country exported USD 110.2 billion of services (-2.2% y-o-y), importing USD 86.4 billion (-3.1% - data by WTO). Although the merchandise trade balance is negative (with imports totalling USD 13.8 billion against USD 20.9 billion of exports), Luxembourg has an overall positive trade balance, estimated at 33% of its GDP by the World Bank (the highest ratio in the world in 2020), while the trade balance of goods is structurally negative. According to preliminary data from the Banque centrale du Luxembourg, in the first half of 2021, the current account showed a surplus of EUR 937 million, a decrease of EUR 2,805 million vis-à-vis the same period of the previous year. Both exports and imports of goods showed significant increases of around 11% and 15% respectively. As for services, exports increased by 10% and imports by 11%.

 
Foreign Trade Values 20162017201820192020
Imports of Goods (million USD) 21,65722,87324,17524,26420,929
Exports of Goods (million USD) 15,81315,75216,41216,45113,803
Imports of Services (million USD) 71,76378,40184,43789,30286,467
Exports of Services (million USD) 94,579102,173110,507112,724110,215

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20162017201820192020
Foreign Trade (in % of GDP) 390.7400.1387.1381.5390.3
Trade Balance (million USD) -2,285-1,926-2,083-1,2342,778
Trade Balance (Including Service) (million USD) 22,71723,44825,83325,30426,985
Imports of Goods and Services (Annual % Change) 1.60.6-0.30.92.1
Exports of Goods and Services (Annual % Change) 2.60.70.50.82.5
Imports of Goods and Services (in % of GDP) 177.6182.5175.5172.8175.8
Exports of Goods and Services (in % of GDP) 213.0217.6211.6208.8214.5

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20212022 (e)2023 (e)2024 (e)2025 (e)
Volume of exports of goods and services (Annual % change) 8.45.93.63.02.9
Volume of imports of goods and services (Annual % change) 8.96.13.63.03.0

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Member of the European Union, WTO, OCDE
 
 

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Political Outline

Current Political Leaders
Grand Duke: HENRI (since 7 October 2000) - hereditary
Prime Minister: Xavier BETTEL (since 4 December 2013)
Next Election Dates
Chamber of Deputies: 31 October 2023
Main Political Parties
Luxembourg has a multi-party system. No party has a chance of gaining power alone, and parties work with each other to form coalition governments. The major political parties in the country are:

- Democrat Party (PD/DP): centre, centre-right, follows the liberal political ideology
- Christian Social Party (PCS/CSV): centre-right, a Christian democratic conservative party with pro-Euro ideology, maintains one-third of parliamentary seats, dominant party for nearly a century
- Alternative Democratic Reform Party (ADR): centre-right, a conservative nationalist party with anti-Euro ideology
- The Left (DÉI LÉNK): centre-left
- Socialist Workers' Party (POSL/LSAP): centre-left, progressive
- Pirate Party: direct democracy, pro-European
Executive Power
The chief of the state is the Grand Duke. The monarch is hereditary. Following popular parliamentary elections, the leader of the majority party or the leader of the majority coalition is appointed as Prime Minister by the monarch to serve a five-year term. Prime Minister is the head of the government and enjoys the executive powers which include implementing the law and running the day-to-day affairs of the country. The Council of Ministers (cabinet) is recommended by the Prime Minister and appointed by the monarch.
Legislative Power
The legislative power is based on the joint action of the Chamber of Deputies, the Government and the Council of State. The Chamber of Deputies, composed of 60 deputies elected for five years by universal suffrage, has the main function of voting bills. Its members also have a right of "parliamentary initiative" which is exercised by the presentation of bills, but which remains moderately used.
The Council of State is an advisory body composed of 21 members appointed by the Grand Duke on the advice of the Prime Minister.
 

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COVID-19 Country Response

COVID-19 epidemic evolution

To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in Luxembourg, please visit the dedicated portal of the national government. Further information can be found on the website of the Ministry of Health.
For the international outlook you can consult the latest
situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.

Sanitary measures
To find out about the latest public health situation in Luxembourg and the current sanitary measures in vigour, please consult the website of the Ministry of Health including the up-to-date information on the containment measures put in place and public health recommendations. Updates can be found on the dedicated portal of the national government.
Further information can be accessed on the City of Luxembourg COVID-19 page.
Travel restrictions

The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.

The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.

Import & export restrictions

Following the measures taken by the European Commission, an export license is required to export personal protective equipment outside of the European Union.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Luxembourg on the
International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

To know about the economic measures taken by the Luxembourgian government to address the impact of the COVID-19 pandemic on the national economy, please visit the dedicated portal “Coronavirus”, as well as the website of the Ministry of Economy. An overview of the economic stabilisation program is available here. The Luxembourg Institute of Socio-Economic Research (LISER) provides an outline of the economic effects of COVID-19 on the national economy.
The information on the EU’s economic response to COVID-19 and the actions to minimise the fallout on the EU member states’ economies of the COVID-19 outbreak is available on the websites of the
European Commission and the European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Luxembourgian government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Luxembourg in the
IMF’s Policy Tracker platform.

Support plan for businesses

To know about the local business support scheme and taxation measures established by the Luxembourgian government to help businesses to deal with the economic impacts of the COVID-19 epidemic on their activity, please consult the official portal Guichet.lu, which provides information for SMEs, large companies and self-employed. For updates, refer to the website of the Ministry of Economy.
Furthermore, the European Commission approved a EUR 300 million scheme to support Luxembourgian companies affected by coronavirus outbreak.

For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the World Bank's Map of SME-Support Measures in Response to COVID-19.

Support plan for exporters

To find out about the support plan for exporters put in place by the Luxembourgian government, please consult the dedicated page on the official portal Guichet.lu.
The European Commission adopted a
Temporary Framework for State aid measures to support the economy in the COVID-19 outbreak, which enables short-term export credit insurance to be provided by the member States where needed.

 

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