Luxembourg has experienced a severe recession as the result of the international financial crisis. Output contracted sharply and unemployment has risen. Luxembourg’s economy was heavily exposed to the downturn in world trade and the financial centre has been strongly affected. However, policy support from accommodative euro area monetary policy and a fiscal stimulus package helped stabilise the economy. While recovery is now underway, demand is likely to be held back by a weakness in competitiveness, necessary fiscal consolidation and lower potential output. Growth in the coming years is likely to be lower than before the crisis, although living standards will remain high.