Luxembourg economy needs long-term reforms, business lobby says

Luxembourg must implement reforms and prepare a long-term economic strategy to protect itself from global challenges and demographic changes, the country’s business lobby has said.

The Grand Duchy’s small and open economy means it is “particularly exposed” to international shocks, the Chamber of Commerce said in its annual end-of-year assessment Tuesday.

“In 2025, uncertainties will persist and new risks will impact Luxembourg with its economy heavily dependent on international developments,” the business lobby said in a news release.

With forecasts of economic growth of between 2.3% and 2.7% next year, according to estimates from the OECD, Statec and the European Commission, the Chamber of Commerce noted that economic expansion remained below the “historical average” of 3%.

The government must work to restore the country’s competitiveness and create a buffer against the impact of external factors, the business lobby said.

“Beyond the structural reforms that the Chamber of Commerce has been calling for for years (particularly in terms of cost competitiveness), it is urgent to stimulate productivity through innovation,” the chamber said.

“Artificial intelligence is undoubtedly the lever that can allow Luxembourg to finally see its productivity start to rise again. This modernisation of the national economy and its continued diversification (particularly towards a “data driven economy”) will have to be accompanied by a major movement of administrative simplification,” the business lobby said.

The Chamber of Commerce said that it has carried out a wide survey of companies to “identify concrete areas for improvement” and will present the findings to the government in the course of the next year.  

Calling on the government to implement reforms in the labour and property market, the chamber said it was clear that Luxembourg’s housing problem “is slowing down the attraction of international talent”, while the “stagnation or even decrease in the number of cross-border workers from Belgium and Germany in recent quarters is a new worrying signal”.

Re-iterating criticisms contained in its opinion on next year’s budget, the Chamber of Commerce said changes need to be made to the social security system to put it on a sound long-term footing, which “requires a reform of the pension system and health and maternity insurance”.

“Healthy public finances (which are reflected in the triple A rating) are an indicator of stability and confidence that is essential to attract international investors and to further develop our financial centre, in a highly competitive context,” the business lobby said in its statement.

The country’s pledge to step up its defence efforts to 2% of GNI [gross national income] by 2030 must be matched by “an economic and industrial defence strategy so that these resources, more than 1.4 billion euros per year in 2030, trickle down into the national economy,” the chamber said.