Luxembourg PESTLE Insights – A Macroeconomic Outlook Report

The GDP of Luxembourg was $81.9 billion in 2021. Luxembourg was ranked 16th out of 136 nations in the GCRI 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 European countries and world averages in the GCRI Q4 2021.

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 the 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.

One of the key issues for Luxembourg’s economy is the increasing shortage of highly skilled personnel and the high level of skill mismatch. As a result, labor productivity growth is constrained, and the pace of innovation is hampered. To tackle the situation, the government reformed the secondary education system in 2017. Furthermore, programs have been introduced that help to improve jobseekers’ digital skills. According to the OECD, the country should provide more school autonomy and closely monitor education quality to provide relevant skills training to pupils.

What are the PESTLE insights of the Luxembourg macroeconomic outlook report?

Political Landscape

Luxembourg has assumed a pivotal role in regional trade integration. In World Bank’s worldwide governance indicators, the country ranked in the 96.6 percentile on voice and accountability in 2020. This parameter measures freedom of expression, freedom of association, freedom of the media, and the extent to which a country’s citizens can participate in selecting their government.

A low level of corruption is one of the main strengths of Luxembourg’s bureaucratic and administrative pillars. According to Transparency International’s Corruption Perceptions Index (2021), Luxembourg was ranked ninth out of 180 countries.

Economic Landscape

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.

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.

Social Landscape

Luxembourg’s provisions for social protection are among the best in Europe. In the Human Development Index Report (2020), the country ranked 23^rd out of 189 countries in 2019.

Social expenditure, which is used to take care of the needy and build a strong social fabric, is a very important part of the government expenditure. The government’s social expenditure can take various forms, such as cash benefits, which include old-age pensions.

Technological Landscape

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.

In 2019, the government launched its strategy on AI to become one of the most advanced digital societies in the world, especially in the European Union. Besides developing AI solutions, Luxembourg plans to design an attractive living environment for data-driven and intensive services and activities relating to AI.

Legal Landscape

Luxembourg had the lowest FDI restrictions as compared to all other OECD countries in 2020. Low FDI restrictions play a key role in international economic integration. According to the OECD, an index value close to zero shows openness, while values close to one indicate a closed and restrictive economy.

The government has actively adapted to changes recommended by the Financial Action Task Force (on money laundering) (FATF) in March 2020. Criteria such as client risk, product risk, country risk, and transaction risk will be assessed under the new legal framework and firms must document the assessment procedure so that it can be produced whenever the CSSF demands it.

Environmental Landscape

Biodiversity resources have the potential to generate tourism revenues. Luxembourg is endowed with a variety of flora and fauna. According to the OECD, the country is home to various species of mammals, birds, and vascular plants.

Luxembourg aims to reduce GHG emissions for the sectors outside the emissions trading scheme between 50% and 55% by 2030, compared to the base year of 2005. Furthermore, the country is aiming to increase its share of renewable energy by 2030.

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Market report scope

Scope

According to the World Bank, Logistics Performance Index (2018), Luxembourg’s rank declined to 24^th in 2018 from second in 2016.

Reasons to Buy

• Macroeconomic outlook report identifies the potentials of the country as an investment destination by analyzing the political, economic, social, technological, legal, and environmental (PESTLE) structure.
• PESTLE insights provides a 360-degree view of the economy which can be used as a strategic tool to understand the market dynamics, business potentials, and direction of operations.
• Along with providing the country’s snapshot, the report captures the risk factors about the macroeconomic risks, political environment, legal environment, demographic and social structure effectiveness, technology & infrastructure, and natural and geographic aspects that might impact business.
• This report also highlights key clusters/cities which contribute significantly to the country’s GDP and population along with major companies’ presence in these areas.