Founded in 963, Luxembourg became a grand duchy in 1815 and an independent state under the Netherlands. It lost more than half of its territory to Belgium in 1839 but gained a larger measure of autonomy. In 1867, Luxembourg attained full independence under the condition that it promise perpetual neutrality. Overrun by Germany in both world wars, it ended its neutrality in 1948 when it entered into the Benelux Customs Union and when it joined NATO the following year. In 1957, Luxembourg became one of the six founding countries of the EEC (later the EU), and in 1999 it joined the euro currency zone.
Growth is projected to remain strong, as domestic demand, notably private consumption, is boosted by strong wages and exports of financial and other business services. The accommodative monetary policy stance in the euro area will support access to credit and valuations of financial assets. Continued strong job creation, even though partly benefitting cross-border workers, is projected to reduce unemployment further to 5½ per cent.
Fiscal space is being used for a welcome tax reform incentivising labour market participation. In addition, increases in taxes on transport fuels could be used to further promote green growth. The financial sector remains the main engine of growth and the efforts to diversify the economy, focussing on digital technology and renewable resources, are thus welcome. Diversification policies should be complemented by policies facilitating the relocation of labour, including measures to increase the supply of housing.
Source: OECD - Economic Forecast
Source: IMF Statistics - Luxembourg