OECD Economic Surveys: Luxembourg 2022
Luxembourg recovered quickly from the COVID-19 pandemic thanks to extensive policy support. However, the impact of the war in Ukraine is exacerbating inflationary pressures, alongside labour market shortages. This highlights the importance of boosting the resilience of the Luxembourgish economy. Longer-term fiscal sustainability challenges should be addressed by improving the efficiency of public spending through regular spending reviews, limiting early exit from the labour market and undertaking much-needed pension reform. Removing disincentives to work and strengthening the effectiveness of active labour market policies, in particular for older workers and disadvantaged youth, would boost employment and lower skill mismatches. Digital skills need to improve and life-long learning should be strengthened. Increasing private R&D spending, improving diffusion of digitalisation, especially for small firms, and reducing the regulatory burden would support productivity growth and economic diversification. Reaching the climate objective of net zero emissions by 2050 will require bold policy action, requiring a clear carbon pricing path and adjustments to urbanisation and transport policies.
SPECIAL FEATURE: SECURING A DYNAMIC AND GREEN ECONOMY
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Key Policy Insights
Luxembourg has the highest per capita income levels in the OECD when measured by GDP, and the third-highest after Switzerland and Norway, when measured by gross national income (, panel A). Growth is jobs-rich, with the unemployment rate one of the lowest in the OECD. However, growth in GDP per capita has been below the OECD average since the global financial crisis (2008-09), following high growth in the early 2000s (, panel B). The economy proved resilient in face of the shock from the 2020-21 COVID-19 pandemic, and the recovery was broad-based. The Russian war of aggression against Ukraine and high inflation in 2022 have affected consumer and business confidence, stifling the economic recovery and making the outlook more uncertain.
Also available in: French