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 | COVID-19 Country Response

 

Economic Indicators

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 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 73.29e86.7782.1584.0389.14
GDP (Constant Prices, Annual % Change) -1.8e6.91.61.12.5
GDP per Capita (USD) 117e136127128134
General Government Balance (in % of GDP) -2.00.7-0.7-0.1-0.2
General Government Gross Debt (in % of GDP) 24.824.325.425.826.0
Inflation Rate (%) 0.03.58.43.72.3
Unemployment Rate (% of the Labour Force) 6.45.75.05.05.0
Current Account (billions USD) 3.024.143.503.684.00
Current Account (in % of GDP) 4.14.84.34.44.5

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 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.

 

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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

See the country risk analysis provided by Coface.

 

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Foreign Trade in Figures

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 Indicators 20172018201920202021
Imports of Goods (million USD) 22,87324,17524,26420,92925,811
Exports of Goods (million USD) 15,75216,41216,45113,80316,623
Imports of Services (million USD) 78,40184,43789,30286,467110,508
Exports of Services (million USD) 102,173110,507112,724110,215140,047
Imports of Goods and Services (Annual % Change) 0.6-0.30.92.1n/a
Exports of Goods and Services (Annual % Change) 0.70.50.82.5n/a
Imports of Goods and Services (in % of GDP) 182.5175.5172.8175.8n/a
Exports of Goods and Services (in % of GDP) 217.6211.6208.8214.5n/a
Trade Balance (million USD) -1,926-2,083-1,2342,778n/a
Trade Balance (Including Service) (million USD) 23,44825,83325,30426,985n/a
Foreign Trade (in % of GDP) 400.1387.1381.5390.3n/a

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

 

Main Partner Countries

Main Customers
(% of Exports)
2021
Germany 25.1%
France 16.0%
Belgium 12.8%
Netherlands 6.4%
Italy 4.2%
See More Countries 35.4%
Main Suppliers
(% of Imports)
2021
Germany 23.6%
Belgium 23.5%
France 12.2%
Netherlands 4.2%
United States 3.4%
See More Countries 33.0%

Source: Comtrade, Latest Available Data

 
 

Main Products

16.3 bn USD of products exported in 2021
Angles, shapes and sections of iron or non-alloy...Angles, shapes and sections of iron or non-alloy steel, n.e.s. 8.0%
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) 4.6%
New pneumatic tyres, of rubberNew pneumatic tyres, of rubber 3.8%
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 3.0%
Self-adhesive plates, sheets, film, foil, tape,...Self-adhesive plates, sheets, film, foil, tape, strip and other flat shapes, of plastics, whether or not in rolls (excl. floor, wall and ceiling coverings of heading 3918) 2.9%
See More Products 77.7%
25.5 bn USD of products imported in 2021
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) 8.9%
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 6.1%
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) 3.7%
Powered aircraft "e.g. helicopters and aeroplanes...Powered aircraft "e.g. helicopters and aeroplanes"; spacecraft, incl. satellites, and suborbital and spacecraft launch vehicles 2.4%
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) 2.1%
See More Products 76.8%

Source: Comtrade, Latest Available Data

 
 

To go further, check out our service Import Export Flows.

 
 

Main Services

118.6 bn USD of services exported in 2020
51.28%
26.94%
4.87%
4.05%
3.22%
3.06%
2.49%
1.74%
1.56%
0.48%
0.32%
91.0 bn USD of services imported in 2020
47.11%
21.59%
7.87%
6.17%
5.97%
3.65%
3.04%
2.04%
2.03%
0.45%
0.08%

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: 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
Type of State
The Grand Duchy of Luxembourg is a parliamentary democracy with a constitutional monarchy.
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.
 

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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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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Latest Update: December 2022