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 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 contracting following the outbreak of the COVID-19 pandemic, Luxembourg’s GDP rebounded in 2021 and grew an estimated 1.6% in 2022 on the back of resilient private consumption and a robust financial sector. The IMF forecasts growth to decelerate to 1.1% in 2023 as private consumption is expected to rise, supported by government measures to mitigate the impact of high energy prices and by the indexations of wages. Investment, which will be subdued this year amid the tightening of financial conditions, should support growth in 2024 when GDP is forecast to rise by 2.5% (IMF).

Luxembourg is the wealthiest country in the world in terms of GDP per capita (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; however, the budget deficit turned negative in 2022 (-0.7% of GDP) due to the government measures taken to offset high energy prices and inflation. Some of these support packages were extended in the 2023 budget, including the reduction in the prices of fuels and heating oil, energy subsidies for low-income households and support schemes for companies affected by high energy costs, as well as a 1% temporary reduction in VAT, resulting in a forecast fiscal deficit of 2.4% of GDP in 2023 (Fitch Ratings). The public debt level is among the lowest in the region, though it increased to 25.4% in 2022 according to the IMF, with an upward trend projected over the forecast horizon (25.8% this year and 26% in 2024). After peaking in the second quarter of the year, headline inflation gradually decelerated in the last two quarters, driven by the slowdown in energy and services price growth, while prices of food and non-energy industrial goods continued to accelerate. For the year as a whole, inflation reached 8.4%, with major contributions from energy and food prices. The IMF expects inflationary pressures to ease in 2023 (3.7%) and in 2024 (2.3%, close to the ECB’s target). 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% in 2022 and is expected to remain stable over the forecast horizon. 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 141,587 at PPP in 2022), around 116,000 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 2,177 per month per adult).

Foreign Trade

Due to its small size and its location, Luxembourg is very open to foreign trade, which represents 388% of its GDP (the highest level in the world - World Bank). The country mainly exports commercial services, especially those related to finance. Concerning merchandise, the main exports by product category are manufactured goods in metals (23.4%), machinery (18.2%), other manufactured goods classified according to raw materials (15.5%), and transport equipment (10%); whereas imports are led by machinery (16.5%), transport equipment (15.9%), chemicals and related products (12.8%), and mineral fuels (9.3% - data Statistics Luxembourg).

Luxembourg is very dependent on its EU partners: in 2021, almost 92.5% of total imports of goods come from other member states (against 88% of total exports), and trade activities with its three neighbouring countries represent more than 50%. Its main customers are Germany (26.1%), France (16.1%) and Belgium (12.8%); the main suppliers being Belgium, Germany and France, which account for 33.2%, 27% and 13.1% of total imports, respectively (data Statistics Luxembourg). 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 2021, the country exported USD 140 billion of services (+27% y-o-y), importing USD 110.5 billion (+27.9% - data by WTO). Although the merchandise trade balance is negative (with imports totalling USD 16.6 billion against USD 25.8 billion of exports), Luxembourg has an overall positive trade balance, estimated at 34.7% of its GDP by the World Bank (the third-highest ratio in the world in 2021). According to preliminary data from the Banque centrale du Luxembourg, in the first half of 2022, the current account recorded a surplus of EUR 2.27 billion: both exports and imports of goods showed significant increases of around 19% each. The balance of international trade in services increased by 9.1% in the same period (+ EUR 1 billion), as exports increased more than imports (+6.1% and +5.3%, respectively).

COVID-19 Country Response

Travel restrictions

Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.

Import & export restrictions

A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

The summary of the EU’s economic response to the COVID-19 pandemic is available on the website of the European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) in Luxembourg, please consult the country's dedicated section in the IMF’s Policy Tracker platform.

Support plan for businesses

For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.