Luxembourg: A steady strong performer

Country Report

Economic activity remained strong in 2016. GDP rose by +3.2%. Although growth is expected to ease to +2.5% in 2017 and +2.3% in 2018 (see Figure 2), performance should stay well above the eurozone average. The growth engines are - as usual -domestic demand and net exports of services, with the financial sector leading the pack. In particular, incomes benefit from the tax-cutting reform  while the investment fund industry has gained momentum. As for national targets under the Europe 2020 Strategy, Luxembourg performs well in job creation and education. Yet more effort is needed in R&D, environment, and poverty reduction. 

Downside risks arise from the high openness of the economy at a time when global policy uncertainties remain high. The size and interconnectedness of the financial system call for rigorous monitoring of risks, as well as enhanced regulation and supervision in the framework of EU rules. Inflated real estate valuations since the global financial crisis have been addressed with a rise in tax credits allocated to house purchases.