Luxembourg: 2024 Article IV Consultation-Press Release; and Staff Report; and Statement by the Executive Director for Luxembourg
IMF Staff Country Reports, June 7, 2024
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- Luxembourg: 2024 Article IV Consultation-Press Release; and Staff Report; and Statement by the Executive Director for Luxembourg
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Bibliographic details
- Published: June 7, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400277894.002
Economic performance and recent developments
- Luxembourg’s economy contracted in 2023 despite buoyant consumption, mainly due to weak external demand and residential investment.
- Credit growth turned negative as demand dropped and real estate prices declined.
- The newly elected government has approved a mix of temporary and permanent measures to support purchasing power and housing demand.
Inflation, financial conditions, and short-term outlook
- Inflation is subsiding but underlying measures remain high.
- Gradually easing financial conditions, continuing disinflation and expansionary fiscal policy are expected to help the economy rebound and the financial cycle bottom out.
- Inflation should decline in 2024, before temporarily increasing in 2025 once administrative price measures expire.
Risks and vulnerability assessment
- The recovery is fragile amid heightened geopolitical tensions.
- Risks are tilted to the downside, stemming mainly from:
- external demand/supply shocks, and
- a disorderly correction of asset prices, including domestic real estate valuations.
Structural challenges and policy recommendations
- Sustained economic growth hinges on raising productivity, which has been stagnant since the Global Financial Crisis.
- Key policy priorities to harness productivity gains and bolster competitiveness:
- Increasing investment in intangible assets.
- Aligning workers’ skills with the current demands of the economy.
- Reducing administrative burden.
- Making the wage indexation system more flexible.
Content in this bundle
- 1luxea2024001