IMF Executive Board Concludes 2019 Article IV Consultation with Luxembourg
IMF News, May 13, 2019
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- Published: May 13, 2019
Overview
- Date: May 13, 2019
- On May 8, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Luxembourg.
- Recent performance: GDP growth reached 2.6 percent in 2018, above the EU average.
- Fiscal position: fiscal surplus estimated at about 2.4 percent of GDP in 2018.
- Labor market: unemployment at record post-crisis lows; confidence indicators well above long-term averages.
- Current assessment: the economy is currently operating close to its potential.
Growth prospects and risks
- Growth drivers:
- Strong private consumption.
- Positive contribution of the external sector.
- Sound economic policies, a qualified workforce, and favorable global economic conditions.
- Downside risks identified:
- Weaker-than-expected global growth.
- A disorderly Brexit.
- Changes in international tax rules.
- A sharp tightening of global financial conditions.
- Domestic risk: rising real estate prices could exacerbate already elevated household indebtedness and increase affordability challenges.
Executive Board Assessment — Findings and recommendations
- Commendations:
- Authorities praised for sound economic policies supporting a favorable growth outlook.
- Strong fiscal position and low public debt lauded.
- Continued commitment to implement European and global tax transparency and anti‑tax avoidance initiatives commended.
- Progress in implementing the 2017 Financial Stability Assessment Program recommendations welcomed.
- Authorities commended for strengthening AML/CFT legislation and finalizing their first National Risk Assessment.
- Fiscal policy guidance:
- Directors encouraged the authorities to maintain prudent fiscal policies and to maintain adequate buffers.
- Directors welcomed fiscal plans aimed at lifting the economy’s potential and making growth more inclusive by increasing public investment and introducing more growth‑friendly, equitable, and “green” taxation.
- Directors noted the need to quantify revenue risks arising from the changing international tax environment and consider mitigating measures.
- Financial sector resilience:
- Need to further enhance oversight of the highly interconnected financial sector.
- Continue to strengthen supervision of banks’ large cross‑border exposures.
- Complete resolution plans for less systemic banks and implement Luxembourg’s component of the euro area credit register.
- In the investment fund sector, system‑wide supervision and cooperation with relevant jurisdictions should be further enhanced.
- Recent measures to enhance macroprudential surveillance welcomed; Directors called for close monitoring of real estate market developments and vulnerabilities from high household indebtedness.
- Recommendation to alleviate housing supply constraints and expand the macroprudential policy toolkit, introducing borrower‑based mortgage lending limits.
- Pensions and labor market:
- Luxembourg’s pension system is sound over the near term, but further reforms have merit to ensure long‑term sustainability.
- Given long lags of pension reforms, engage with key stakeholders in a timely manner, taking into account intergenerational equity and tradeoffs of various reform options.
- Key structural gaps need to be addressed to boost economic potential and make growth more inclusive.
- While youth and low‑skilled have benefited most from recent strong job creation, more needs to be done to tackle structural unemployment and low elderly labor market participation.
Selected economic indicators (2014–19)
- Real GDP (Change in percent, unless otherwise indicated):
- 2014: 4.3
- 2015: 3.9
- 2016: 2.4
- 2017: 1.5
- 2018: 2.6
- Gross investment:
- 2014: 12.2
- 2015: -4.7
- 2016: 7.6
- 2017: 1.2
- 2018: 0.6
- Unemployment (percent of the labor force):
- 2014: 7.1
- 2015: 6.8
- 2016: 6.3
- 2017: 5.9
- 2018: 5.5
- 2019 Est.: 5.0
- Resident employment (thousands):
- 2014: 239.7
- 2015: 244.8
- 2016: 250.3
- 2017: 257.3
- 2018: 264.5
- 2019 Proj.: 271.7
- Total employment (thousands):
- 2014: 396.0
- 2015: 406.1
- 2016: 418.4
- 2017: 432.8
- 2018: 449.0
- 2019 Proj.: 464.3
- CPI (harmonized), p.a.:
- 2014: 0.7
- 2015: 0.1
- 2016: 0.0
- 2017: 2.1
- 2018: 2.0
- 2019 Proj.: 1.6
- Public finances (Percent of GDP):
- General government revenues:
- 2014: 43.3
- 2015: 43.7
- 2016: 44.4
- 2017: 45.5
- 2018: 44.6
- General government expenditures:
- 2014: 42.0
- 2015: 41.9
- 2016: 43.0
- 2017: 43.1
- 2018: 43.6
- General government balance:
- 2014: 1.3
- 2015: 1.4
- 2016: 1.9
- 2017: 0.9
- General government gross debt:
- 2014: 22.7
- 2015: 22.2
- 2016: 20.7
- 2017: 23.0
- 2018: 21.4
- 2019 Est.: 21.5
- Balance of payments:
- Current account balance:
- 2014: 5.2
- 2015: 5.1
- 2016: 4.7
- 2017: 4.6
- Balance of trade in goods and services:
- 2014: 33.3
- 2015: 36.8
- 2016: 35.5
- 2017: 33.0
- 2018: 31.0
- 2019 Proj.: 29.2
- Factor income balance:
- 2014: -28.6
- 2015: -33.0
- 2016: -31.7
- 2017: -27.5
- 2018: -25.9
- 2019 Proj.: -25.0
- Transfer balance:
- 2014: 0.5
- 2015: -0.5
- 2016: 0.3
- Exchange rates:
- U.S. dollar per euro:
- 2014: 1.1
- 2015: …
- Nominal effective rate (2010=100):
- 2014: 100.5
- 2015: 97.0
- 2016: 98.9
- 2017: 101.5
- 2018: 103.5
Source: IMF Executive Board conclusions on the 2019 Article IV consultation with Luxembourg.
