Luxembourg: Macroeconomic Country Outlook
- GlobalData forecasts the real GDP growth at 3% and household consumption growth at 3.8% in 2022.
- Luxembourg was ranked 16th out of 136 nations in the MLCRI Q4 2021. The country’s score is in the very low-risk nations band (below 30).
- According to the Luxembourg Space Agency (LSA), the space industry’s contribution to the nation's GDP is amongst the highest in Europe.
PESTLE Summary
- Political: Luxembourg is a strong supporter of multilateral organizations. The nation is a signatory to the Brussels Treaty, a member of NATO and a founding member of the Council of Europe. The country is host to various institutions, such as the European Investment Bank, Secretariat-General of the European Parliament, and European Court of Justice. It has bilateral agreements with Australia and Canada which involve economic cooperation, along with cooperation in the areas of visas, mutual assistance on criminal matters, and extradition.
- Economic: Luxembourg’s economy to grow at a slower pace in 2022. According to GlobalData, the economy grew by 5.1% in 2021 aided by pick up in consumption, resumption of economic activities and vaccination drive. However, the rise of Omicron cases since December 2021 has retarded the economic growth prospect. Moreover, since beginning of January 2022, Germany re-imposed travel restrictions against Luxembourg and added to its red-list. OCED forecasts the core inflation to rise given the supply chain constraints. Against this backdrop, GlobalData forecasts the economy to grow at a slower pace of 3% in 2022.
- Social: Luxembourg’s provisions for social protection is among the best in Europe. In the Human Development Index Report (2020), the country ranked 23rd out of 189 countries in 2019. According to the OECD’s ‘Health at Glance: Europe Report 2020’, deaths from cancer in Luxembourg per 100,000 persons was 230.2, which is lesser than France (262.1), the Netherlands (283.7) and Poland (331.4). In 2018, the country invested highest in tertiary education as compared to its peers. Luxembourg spent $47,649 per student at tertiary level education as compared to the OECD average of $17,065.
- Technology: According to the Network Readiness Index 2021, published by Portulans Institute, Luxembourg was ranked 17th out of 134 nations on the network readiness index. It performed well in terms of technology pillar. The nation was ranked ninth out of 134 countries on the technology pillar with a score of 74.4 out of 100. Additionally, under the technology pillar parameter, Luxembourg was ranked 13th with a score on 62.3 out of 100, on the sub-pillar of future technologies.
- Legal: To ensure competitive regulation, the country has to reduce regulatory barriers in some sectors. According to the OECD, overall product market regulation in Luxembourg stood at 1.8, which is higher than the OECD average of 1.4 in 2018. To calculate the value, all the qualitative information is normalized over a zero to six scale, where a lower value reflects a more competition-friendly regulatory position. In Luxembourg, professional services provided by lawyers, notaries, architects, and accountants face regulatory barriers to competition. Although the underlying principle for regulation is the prevention of market failures and information irregularities, regulations can in effect stifle competition. The country’s retail sector is also highly regulated. These regulations may be accompanied by costs in the form of excessive compliance burdens for business, which discourage entrepreneurs and rewards monopolies.
- Environmental: Efforts to increase the renewable energy share of total energy consumption. The EU is running various environmental programs to reduce the effects of climate change and establish a common energy policy in the Eurozone. All EU member states have agreed to binding targets to increase renewable energy. The country is aiming to reduce GHG emissions for the sectors outside the emission trading scheme by 50% to 55% by 2030, compared to the base year of 2005. The country also plans to increase its share of renewable energy from 11% in 2020 to between 23% and 25% by 2030. According to Eurostat, in 2020, the Grand Duchy managed to include 11.7% of green energies into its annual consumption. Luxembourg is pushing for net-zero GHG emissions and 100% renewable electricity by 2050.
Key Fundamentals
Macroeconomic Outlook
- The country’s specialization in financial and related services has helped to transform the economy from steel-based to a key global financial center. This change was aided by the adoption of an array of directives from the EU. According to GlobalData, Luxembourg is the third richest country in the world with $127,943.5 nominal GDP per capita in 2021, which increased from $48,436 in 2000.
- Despite the COVID-19 disruption to the economy, according to Eurostat, Luxembourg’s government debt as percentage of GDP stood at 24.9% in 2021, which was second lowest in the EU. The country was preceded by only Estonia with debt at only 18.2% of its GDP.
- Luxembourg’s strict laws on banking secrecy made it an attractive destination for people seeking to evade taxes. By the end of 2018, the government also implemented draft laws on the Anti-Tax Avoidance Directive (ATAD), which came into effect from January 1, 2019. As of December 2019, the country’s parliament implemented ATAD 2 into domestic law to extend the anti-hybrid provisions of ATAD 1. However, it was stated that most of the provisions were applicable from January 2020, or after. The government’s announcement gives individuals and the financial sector sufficient time to minimize the impact. The decision is expected to increase transparency in the financial sector.
GlobalData Country Risk Index (GCRI) - Q4 2021
Luxembourg was ranked 16th out of 136 nations in the MLCRI Q4 2021. The country’s score is in the very low-risk nations band (below 30). Luxembourg’s overall risk score is lower than the West Europe countries and world averages in the MLCRI Q4 2021. The country had an overall score of 23.8 and performed well (compared to the West Europe average) in terms of the macroeconomic, political, social and demographic parameters. However, its risk score was higher in the legal and technology and infrastructure parameters.
GCRI Methodology
MarketLine’s unique Country Risk Model determines the existing and future level of country risk by assessing various qualitative and quantitative factors. The index is designed to help firms formulate their global business strategies based on historical developments in an economy.
The Country Risk Index incorporates the latest available macroeconomics, political, social, technological, environmental, and legal data from a range of recognized national and international statistical sources and incorporates proprietary data from MarketLine. West European nations in this publication include Switzerland, Sweden, Finland, Germany, Denmark, Iceland, the Netherlands, Austria, Norway, Ireland, the UK, Belgium, Luxembourg, France, Italy, Spain, Greece, and Portugal.
About the report
GlobalData Macroeconomic Outlook report is designed to provide detailed macro-economic analysis which will help clients in their business planning, investment and strategic decisions, and analysis. It also provides a quick view of the current situation and the risk score of the country in comparison to region and world based on the proprietary risk framework. The report also highlights key strengths, weaknesses, opportunities, and threats in each of the pillars of PESTLE, economic growth prospects, and key events which can impact the country’s future outlook.
More details: Luxembourg PESTLE Insights - A Macroeconomic Outlook Report
Related Data & Insights
Still looking?
Don’t wait - discover a universe of connected data & insights with your next search. Browse over 28M data points across 22 industries.
Explorer
Access more premium companies when you subscribe to Explorer