2006 OECD Economic Surveys: Luxembourg 2006

image of OECD Economic Surveys: Luxembourg 2006

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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Public Finances

Adjusting to Lower Growth

After having been a model of fiscal rectitude until 2001, Luxembourg has since then joined the group of countries experiencing budgetary difficulties. With expenditure growth remaining brisk, in spite of decelerating growth entailing a slowdown in revenue growth, the fiscal balance has rapidly deteriorated and the general government deficit has reached 1.9% of GDP in 2005, raising concerns with policymakers. The authorities are rightly determined to bring the budgetary position close to balance before the end of the current legislature, i.e., by 2009 at the latest. This will require dealing with the fast-growing trend of public spending, notably the strong momentum of social benefits and public salaries.

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