Luxembourg

Situated in the center of Europe and bordered by Belgium, France and Germany, the Grand Duchy of Luxembourg is a multilingual and cross-border area par excellence. In January 2021, the country’s population was 634,730 inhabitants, of whom 47.42% were foreigners of some 70 different nationalities. Luxembourg is part of all significant European and international multilateral organizations, is one the three seats of EU institutions (alongside the cities of Brussels and Strasbourg) and is a key international financial center.

After a decline in GDP of only 1.3% in 2020 (the economic impact of the coronavirus pandemic was relatively benign because of the structure of Luxembourg’s economy), GDP growth was expected to return to a positive rate of 4% in 2021, and 2.6% in the medium term (estimations by STATEC). With an average growth rate of 2.1% over the last five years, Luxembourg’s economic growth rate is almost four times higher than that of the euro area.

The Grand Duchy is considered to be the third-most-open economy in the world, with an openness ratio of 158.2% of GDP. The country has an export-intensive economy, with a recurrent trade deficit. The share of foreign trade in Luxembourg’s GDP is currently higher than 30%. Even during the coronavirus crisis, the country has continued to pursue its strategy of public investment. Direct and indirect investments were expected to reach 4.3% of GDP in 2021, a significantly higher level than the average of 3.7% during the 2015-2019 period.

The country has the highest ratio of capital tax to GDP (12.3%) in the EU, which reflects the systemic importance of the financial sector in the economy. According to the European Commission, the country’s public debt is expected to increase to 25.4% of GDP in 2020, 27.3% in 2021 and 28.9% in 2022.

Luxembourg has a highly skilled workforce (59.6% of the economically active population). Over the past 12 months, overall employment rose by 1.6%, or 2.2% among cross-border workers/ Two-thirds of jobs created in Luxembourg are aimed at higher education graduates. In 2020, Luxembourg ranked first in the EU in terms of R&D investment per capita. The strong influx of mostly well-educated workers is increasing the long-term demand for goods and services of all kinds. However, the risk of in-work poverty and social exclusion has been steadily growing over the last two decades. Luxembourg ranks among those EU countries where this risk is the highest.

The country received about 1,904 refugees in 2020. Overall, the country is coping well with immigration. Xenophobia and anti-Semitism are not widespread, and are consistently punished by courts. The Migrant Integration Policy Index 2020 assessed Luxembourg’s integration policies as being slightly favorable for societal integration (score 64/100), an above-average level for Western Europe.

With an outstanding social security system, a level of material well-being above the EU average and sound public finances, Luxembourg is currently one of the most politically stable and prosperous countries in the world. Its strong fiscal position is well illustrated by a long-standing AAA credit rating, a significant accumulation of government financial assets, and a balanced, healthy fiscal position. The Grand Duchy is a generally consensus-oriented society with a well-known model of neo-corporatism (the Luxembourg Model), which became institutionalized in the aftermath of the steel crisis in the 1970s. The public administration, which is almost completely digitalized, is efficient, and the overall economic outlook remains stable. Nevertheless, in the context of the pandemic, there have been some problems in the healthcare system due to a lack of medical staff.

Luxembourg still suffers from a number of deficits in terms of environmental protection, including pollution in rivers and fresh water supplies, nitrate pollution due to agricultural runoff, and harmful emissions.

Danescu, Elena. “Luxembourg Economy.” In Hartly C. (Ed). Western Europe 2022. Western Europe Book Series. Routledge, Abington:UK, 2022. pp. 464-481.

“Stability and Growth Programme of the Grand Duchy of Luxembourg 2021 > 2025”/De Stabilitéits-Programm.”
The Government of the Grand Duchy of Luxembourg. Ministry of Finance. https://ec.europa.eu/info/sites/default/files/2021-luxembourg-stability-programm e_en.pdf. Accessed 03 Jan.2021.

“National Plan for a Green, Digital and Inclusive Transition. National Reform Programme of the Grand Duchy of Luxembourg under the European semester 2021.” The Government of the Grand Duchy of Luxembourg. https://ec.europa.eu/info/sites/default/files/2021-european-semester-national-re form-programme-luxembourg_en.pdf. Accessed 03 Jan.2022.

“Economic forecast for Luxembourg 2020-2023. European Commission.” https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecas ts/economic-performance-country/luxembourg/economic-forecast-luxembourg_en. Accessed 03 Jan.2022.

“Governance of migrant integration in Luxembourg, 2020.” European Commission (2021). https://ec.europa.eu/migrant-integration/country-governance/governance/luxembour g_en. Accessed 3 January 2022.