Assessment and recommendations

Luxembourg’s economy has enjoyed a strong performance since the 2006 Survey. The economy grew by 4.5% in 2007, faster than in most other OECD countries, with relatively moderate national headline inflation of just over 2%. The general government had a surplus of 3% of GDP, while the current account surplus was around 10% of GDP. The main driver of economic growth has been the financial sector, which has continued to sharply expand its activity and now accounts for nearly 30% of GDP. Collective investment funds registered in Luxembourg hold assets of EUR 2 trillions, about one-fourth of investment funds’ assets in Europe. Private banking is also an important source of activity, with the third largest market share worldwide after Switzerland and the Caribbean Islands. There have been important beneficial effects of this expansion. Not only has the financial sector created large numbers of jobs, it has also been a significant purchaser of business services supplied by other sectors, such as legal services and real estate. Other positive effects have boosted the rest of the economy, such as knowledge, skill and location spillovers. The budget has benefited from dynamic tax revenues paid by the financial sector, together with temporary and recurrent positive revenue surprises from other sources. This has supported the expansion of the public sector, although its size has declined in relation to GDP.