Economic and Political Overview

flag Luxembourg Luxembourg: Economic and Political Overview

In this page: Economic Indicators | Foreign Trade in Figures | Sources of General Economic Information | Political 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. Economic performance has been weaker than expected, with a slow recovery underway. GDP growth in 2024 is estimated at 0.5%, below the EA average for the third consecutive year, despite strong public consumption. Mortgage demand began recovering in H2 2024, and house prices have stabilized, but new construction remains weak. Credit growth to the private sector is negative due to low demand, ongoing deleveraging, and tighter credit standards. While banks' asset quality has worsened, it remains manageable. GDP growth is projected to reach 2% in 2025 and 2.5% in 2026-27, driven by the private sector, supported by lower interest rates, housing market recovery, and pent-up domestic demand (IMF).

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 and 2024 (0.7% and 0.6% of GDP, respectively). Expenditure growth slowed compared to the previous year, due to a less inflationary environment where the automatic indexation of wages and social transfers was not warranted. Revenue growth remained robust despite measures to support households' purchasing power, the competitiveness of enterprises, and the construction sector. The overall impact of these measures on revenues was estimated at 0.5% of GDP, including an upward adjustment of personal income tax brackets following several wage indexations and a reduction in social security contributions for companies. In 2025, the deficit is projected to rise to 0.8% of GDP due to new measures supporting economic recovery and households' purchasing power. Despite the economic rebound, direct tax revenues are expected to grow more slowly as the government implements measures like a corporate income tax cut. The near phase-out of energy price mitigation measures helps limit expenditure growth, despite rising price pressures and increased spending on public employee compensation and social transfers. The deficit is expected to decrease to 0.6% of GDP in 2026, with revenue growth outpacing expenditure growth. Interest rate expenditure is expected to rise due to higher refinancing rates and growing debt, reaching 0.4% of GDP in 2026. The debt-to-GDP ratio is projected to increase from 25.5% in 2023 to 27.5% in 2026, driven by budget deficits and social security fund-related stock-flow adjustments (data EU Commission). Headline inflation is set to drop to 2.3% in 2024 as a result of decelerating goods prices, primarily of energy, but also of food and industrial goods. It is projected to rebound slightly to 2.4% in 2025 as the acceleration of energy inflation (following the phase-out of most of the energy-related measures) is expected to more than offset the deceleration in food prices. Headline inflation is then forecast to drop to 1.8% in 2026 as inflation of energy turns negative and that of services and foods moderates further. Consequently, HICP inflation excluding energy, food, alcohol and tobacco is expected to rebound temporarily from 2.6% in 2024 to 2.7% in 2025 before decreasing to 2.1% in 2026 (data EU Commission).

Outside the public sector, employment growth has been slow, and the unemployment rate has continued to rise, exceeding the long-term average of 5.5% in 2024. The unemployment rate is expected to remain stable this year, then gradually decrease to 5.8% in 2026 as employment recovers slightly. 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 151,145 at PPP in 2024 – IMF), around 18.8% 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 2,518 per month per adult in 2023).

 
Main Indicators 2023 (E)2024 (E)2025 (E)2026 (E)2027 (E)
GDP (billions USD) 85.7891.2196.99101.97106.21
GDP (Constant Prices, Annual % Change) -1.11.32.72.52.3
GDP per Capita (USD) 129,810135,321141,080145,410148,488
General Government Balance (in % of GDP) 0.5-0.5-1.6-1.4-1.6
General Government Gross Debt (in % of GDP) 25.726.727.828.429.1
Inflation Rate (%) 2.92.52.62.32.0
Unemployment Rate (% of the Labour Force) 5.25.85.95.65.4
Current Account (billions USD) 5.826.266.807.207.44
Current Account (in % of GDP) 6.86.97.07.17.0

Source: IMF – World Economic Outlook Database , Latest available data

Note: (e) Estimated Data

Main Sectors of Industry

The government has been aiming at economic diversification 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 131.6 thousand hectares (FAO). It contributes only 0.2% to the GDP and employs less than 1% 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 636 million) accounted for only 0.1% of the total EU production value in 2023.

The industrial sector (10.5% of the GDP and 9.6% 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 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% 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 89,5% of the active population) represents 80.6% 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 investment fund managers. The financial sector is the economic engine of the country, representing more than one-fourth of GDP and a significant portion of the country’s tax revenues. 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) 0.9 9.6 89.5
Value Added (in % of GDP) 0.2 10.5 80.6
Value Added (Annual % Change) 1.5 0.5 -1.6

Source: World Bank - Latest available data.

 

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Monetary Indicators 20152016201720192020
Euro (EUR) - Average Annual Exchange Rate For 1 MUR 0.030.030.030.030.02

Source: World Bank - Latest available data.

 
 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
76/100
World Rank:
18
Regional Rank:
11

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

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Foreign Trade in Figures

Due to its small size and location, Luxembourg is highly open to foreign trade, which represents 394% of its GDP (the highest level in the world - World Bank). The country primarily exports commercial services, especially those related to finance. Concerning merchandise, at least 65% of goods and services 'made in Luxembourg' are exported. The main exports by product category are base metals (19.8%), machinery (18.9%), plastics (14.9%), vehicles (11.6%), and products of the chemical industry (6.9%); whereas imports are led by vehicles (17.2%), machinery (15.2%), mineral products (13.4%), base metals (10.7%), products of the chemical industry (8.1%), and plastics (8%- data Statistics Luxembourg).

Luxembourg is highly dependent on its EU partners, which account for roughly 90% of its foreign trade. Trade activities with its three neighbouring countries represent more than 50%. In 2023, its main customers were Germany (25.4%), France (15.6%), Belgium (12.3%), the Netherlands (6.7%), and Italy (4.4%); with imports coming chiefly from Belgium (24.4%), Germany (21.8%), France (10.4%), the Netherlands (4.7%), and Italy (3.4% - data Comtrade).

In 2023, the country exported USD 148.7 billion of services (+2.7% y-o-y), importing USD 119.7 billion (+4.7% - data by WTO). Although the merchandise trade balance is negative (with imports totalling USD 25.5 billion against USD 17.1 billion of exports), Luxembourg has an overall positive trade balance, estimated at 30.8% of its GDP by the World Bank (the sixth-highest ratio in the world in 2023). The Banque Centrale du Luxembourg (BCL) and STATEC report that the current account for the first half of 2024 showed a surplus of EUR 4 billion, up by EUR 1.9 billion from the previous year. The goods surplus reached EUR 267 million, a turnaround from a EUR 1.3 billion deficit in the same period last year, driven by an 8% rise in exports and a 5% drop in imports. The balance of international trade in services grew by 15% to EUR 1.8 billion, with exports rising by 4% and imports increasing by 1.5%.

 
Foreign Trade Indicators 20192020202120222023
Imports of Goods (million USD) 24,26421,16526,17027,20825,535
Exports of Goods (million USD) 16,45113,83916,80017,31317,148
Imports of Services (million USD) 91,54798,663124,055114,297119,733
Exports of Services (million USD) 112,683125,962155,948144,720148,728
Imports of Goods and Services (Annual % Change) 7.4-0.412.4-1.9-0.1
Exports of Goods and Services (Annual % Change) 6.00.610.3-0.6-1.4
Imports of Goods and Services (in % of GDP) 175.9169.2179.9177.2181.7
Exports of Goods and Services (in % of GDP) 206.4203.1213.2211.3212.5
Trade Balance (million USD) 1,7711,584806-664-520
Trade Balance (Including Service) (million USD) 25,10028,51435,29428,76828,000
Foreign Trade (in % of GDP) 382.3372.3393.1388.5394.2

Source: WTO – World Trade Organisation ; World Bank , Latest Available Data

 

Main Partner Countries

Main Customers
(% of Exports)
2023
Germany 25.4%
France 15.6%
Belgium 12.3%
Netherlands 6.7%
Italy 4.4%
See More Countries 35.7%
Main Suppliers
(% of Imports)
2023
Belgium 24.4%
Germany 21.8%
France 10.4%
Netherlands 4.7%
Italy 3.4%
See More Countries 35.3%

Source: Comtrade, Latest Available Data

 
 

Main Products

16.3 bn USD of products exported in 2023
Angles, shapes and sections of iron or non-alloy...Angles, shapes and sections of iron or non-alloy steel, n.e.s. 6.8%
Motor cars and other motor vehicles principally...Motor cars and other motor vehicles principally designed for the transport of persons, incl. station wagons and racing cars (excl. motor vehicles of heading 8702) 5.0%
New pneumatic tyres, of rubberNew pneumatic tyres, of rubber 4.9%
Sheet piling of iron or steel, whether or not...Sheet piling of iron or steel, whether or not drilled, punched or made from assembled elements; welded angles, shapes and sections, of iron or steel 3.1%
Nonwovens, whether or not impregnated, coated,...Nonwovens, whether or not impregnated, coated, covered or laminated, n.e.s. 2.6%
See More Products 77.6%
25.2 bn USD of products imported in 2023
Motor cars and other motor vehicles principally...Motor cars and other motor vehicles principally designed for the transport of persons, incl. station wagons and racing cars (excl. motor vehicles of heading 8702) 10.4%
Petroleum oils and oils obtained from bituminous...Petroleum oils and oils obtained from bituminous minerals (excl. crude); preparations containing >= 70% by weight of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, n.e.s.; waste oils containing mainly petroleum or bituminous minerals 7.0%
Ferrous waste and scrap; remelting scrap ingots of...Ferrous waste and scrap; remelting scrap ingots of iron or steel (excl. slag, scale and other waste from the production of iron or steel; radioactive waste and scrap; fragments of pigs, blocks or other primary forms of pig iron or spiegeleisen) 2.6%
Medicaments consisting of mixed or unmixed...Medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses "incl. those in the form of transdermal administration" or in forms or packings for retail sale (excl. goods of heading 3002, 3005 or 3006) 2.5%
Cheese and curdCheese and curd 1.7%
See More Products 75.9%

Source: Comtrade, Latest Available Data

 
 

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Main Services

Source: United Nations Statistics Division, Latest Available Data

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Sources of General Economic Information

Ministries
Ministry of Economy
Ministry of Finances
Statistical Office
The National Statistical Institute of Luxembourg
Central Bank
Central Bank of Luxembourg
Stock Exchange
Luxembourg Stock Exchange
Search Engines
Economic Portals
Economic Portal (in French)

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Political Outline

Current Political Leaders
Grand Duke: HENRI (since 7 October 2000) - hereditary
Prime Minister: Luc FRIEDEN (since 17 November 2023)
Next Election Dates
Chamber of Deputies: October 2028
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:

- Christian Social Party (PCS/CSV): centre-right, a Christian democratic conservative party with a pro-Euro ideology
- Democrat Party (PD/DP): centre, centre-right, follows the liberal political ideology
- Socialist Workers' Party (POSL/LSAP): centre-left, progressive
- Alternative Democratic Reform Party (ADR): centre-right, a conservative nationalist party, eurosceptic
- Greens: centre-left, green politics
- Pirate Party: direct democracy, pro-European
- The Left (Déi Lénk): centre-left.
Type of State
The Grand Duchy of Luxembourg is a parliamentary democracy with a constitutional monarchy.
Executive Power
The head of state is the Grand Duke, a hereditary monarch. Following parliamentary elections, the leader of the majority party or coalition is appointed as Prime Minister by the Grand Duke. The Prime Minister, as head of government, holds executive powers, including implementing laws and managing the country’s day-to-day affairs. The Council of Ministers (cabinet) is nominated by the Prime Minister and formally appointed by the Grand Duke.
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.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
20/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
1/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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Latest Update: May 2025