2006 OECD Economic Surveys: Luxembourg 2006

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This 2006 OECD review of Luxembourg's economy examines the challenges Luxembourg is facing with regard to slowing economic growth, public finances, employment, education achievement and product market competition. It finds that Luxembourg has regained its footing after a slowdown at the start of the decade and that the financial servies sector, which accounts for one-third of economic activity, has renewed confidence. But there is deterioration in the fiscal position, weakening of the pension system, and growing unemployment all of which could be improved through enhanced human capital development and strengthened product market competition.

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Insuring Against Lower Economic Growth in the Long Term

Economic growth in Luxembourg has picked up to around the trend rate in the past two years, following weak activity in the wake of the bursting of the global equity market bubble. While the estimated trend growth rate remains high by international comparison, it has nevertheless slowed considerably from the 1980s- 90s, reflecting lower contributions from financial services. In the long term, such contributions may weaken further as adjustment to factors such as financial market liberalisation and regulatory and tax advantages that have underpinned rapid development of Luxembourg’s financial sector draws to a close, pulling trend growth closer to the European average. In a related development, output growth has become increasingly labour intensive.

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