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

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.