EU expects slight upturn in Luxembourg economy for 2025 

Luxembourg’s economy is expected to grow further than previously forecast next year, the EU said on Friday.

GDP growth will rise to 2.3% in 2025 and be at 2.2% the following year, the European Commission said in its latest autumn forecast.

That is an improvement on the somewhat gloomier forecast of just 2% growth for Luxembourg next year that the commission had estimated during its last forecast back in May.

However, the immediate prognosis for 2024 has been revised downwards since May, from 1.3% to 1.2% growth, “mainly due to weaker investment and net exports amid adverse financing conditions and geopolitical uncertaint,” the commission wrote.

“After a deceleration in 2024, headline inflation is set to rebound slightly in 2025 as a result of the phasing out of several energy measures,” it said in its Luxembourg country report. “The general government balance is projected to remain in a small deficit.”

The GDP growth forecasted by the EU is lower than that estimated by Luxembourg’s national statistics agency Statec, which has said it expects 1.5% growth for 2024 and 2.7% in the coming years.

Reducing the deficit

While the May forecast for Luxembourg predicted the country would run a deficit of 1.7% of GDP this year and 1.9% next year, the latest revised projection is for a 0.6% deficit this year and a slight increase to 0.8% next year.

The commission puts this down to “the impact of a new set of measures to support the economic recovery and households’ purchasing power.”

The deficit is set to decline again to 0.6% of GDP in 2026, as the commission expects revenue growth to outpace expenditure growth. “The assumed complete phase out of energy-related measures by end of 2025 should contribute to this,” it wrote.

However, that will also contribute to a slight rebound in inflation to to 2.4% in 2025, up from 2.3% forecast for this year.

The commission also expects employment growth in Luxembourg to lag activity this year as GDP contracts. The unemployment rate is expected to rise to 6% in 2024, from 5.2% last year, and to stabilise in 2025 before dropping slightly in 2026 to 5.8%.