OECD Economic Outlook May 2019, Country Notes: Luxembourg

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Luxembourg Economic growth is projected to decline to 2% in 2019, but to recover to 2.5% in 2020. Domestic demand will support economic activity, notably private consumption, which will be held up by a resilient labour market and continuing effects of the tax reform. Slow growth in the euro area will weigh on exports of financial and non-financial services. Continued job creation will primarily benefit cross-border workers, but also help to reduce the unemployment rate to just above 5%. Fiscal policy is sound and ample fiscal space could be used to step up infrastructure investment and implement other growth-enhancing measures, such as housing construction. Reliance on the financial sector exposes Luxembourg to high financial volatility transmitted by international investment funds, which warrants ongoing monitoring and diversification of the economy. Constraints on the supply of housing need to be addressed as housing prices continue to increase and household indebtedness is high. Domestic demand underpins growth Consumer confidence has rebounded, pointing to continued robust household consumption supporting economic growth. In contrast, business confidence deteriorated in the first quarter of 2019, suggesting a possible weakening in exports of both financial and non-financial services. A decline in the unemployment rate, by more than half a percentage point from a year earlier, and a high vacancy rate, indicate tight labour markets. There is growing evidence of skills mismatches and shortages, signalling potential capacity constraints. Luxembourg’s position as a global financial hub translates into further growth of assets under the management of investment funds, driven by a search for yield and positive valuation effects from accommodative monetary policy. The contribution to growth by the financial sector was positive in 2018.

Luxembourg GDP growth has been strong

Population growth outpaces housing construction 2014-2015 changes

Y-o-y % changes 12 10 8

Luxembourg

Population

Euro area

Dwellings

% change 2.4 2.2 2.0 1.8

6

1.6

4

1.4

2

0

0

0

1.2 1.0

-2

0.8

-4

0.6

-6

0.4

-8

0.2

-10

2007

2009

2011

2013

2015

2017

2019

FRA

DEU

CHE

LUX

0.0

Source: OECD Economic Outlook 105 database; OECD (2018), International Migration Outlook; and OECD Affordable Housing Database. StatLink 2 https://doi.org/10.1787/888933934736

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019


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