{
  "title": "IMF Executive Board Concludes 2024 Article IV Consultation with Luxembourg",
  "publication": "IMF News, June 7, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/06/07/pr-24209-luxembourg-imf-executive-board-concludes-2024-art-iv-consultation",
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  "summary": "On May 29, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Luxembourg",
  "publishDate": "2024-06-07",
  "sections": [
    {
      "heading": "Summary assessment and macroeconomic outlook",
      "content": "- On May 29, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Luxembourg.\n- Luxembourg’s economy contracted in 2023 despite buoyant consumption, mainly due to weak external demand and residential investment.\n- Growth projections:\n  - Gross domestic product: 2019: 2.9; 2020: -0.9; 2021: 7.2; 2022: 1.4; 2023: -1.1; 2024: 1.3; 2025: 2.5; 2026: 2.3.\n  - Total domestic demand: 2019: 4.9; 2020: -4.0; 2021: 10.9; 2022: -1.0; 2023: 2.4; 2024: 1.9; 2025: 3.3; 2026: 2.7; 2027: 2.6.\n  - Foreign balance (contribution to GDP growth): 2019: -0.3; 2020: 1.8; 2021: 0.0; 2022: 2.0; 2023: -2.6; 2024: -0.2; 2025: 0.6; 2026: 0.7.\n- Inflation and prices:\n  - Headline CPI (harmonized) is expected to decline below 3 percent in 2024, before temporarily increasing in 2025 once administrative energy price measures expire.\n  - CPI (national definition), p.a.: 2019: 0.8; 2020: 6.3; 2021: 3.7; 2022: 3.2.\n  - CPI core (harmonized), p.a.: 1.2; 1.5; 4.2; 3.9; 2.8 (values listed as in source).\n  - Wage growth (overall economy): 5.1; 7.3 (values listed as in source).\n- Labor market:\n  - Unemployed (average, thousands): 2019: 15.4; 2020: 18.7; 2021: 17.1; 2022: 14.6; 2023: 16.2; 2024: 18.6; 2025: 18.9; 2026: 18.3; 2027: 18.4.\n  - Unemployment rate (percent of total labor force): 5.4; 6.4; 5.7; 4.8; 5.2; 5.9; 5.5; 5.3.\n  - Total employment (levels and percent change): 463.3; 471.6; 485.1; 501.4; 512.7; 519.5; 529.6; 541.3; 553.4; 565.4; 577.5 (percent change examples: 3.5; 3.4; 2.2; 2.1; 2.4).\n- Credit and asset prices:\n  - Credit growth turned negative as demand dropped and real estate prices declined.\n  - Nonfinancial private sector credit (end of period, percent change) examples: 5.0; 4.4; 4.7; 4.6 (as reported).\n- Risks:\n  - Risks are tilted to the downside, mainly from external demand and supply shocks, and a disorderly correction of asset prices, including domestic real estate valuations."
    },
    {
      "heading": "Fiscal position and public debt",
      "content": "- Fiscal stance and assessment:\n  - The newly elected government approved a mix of temporary and permanent measures to reinvigorate growth and boost competitiveness.\n  - The moderately expansionary fiscal stance is judged broadly appropriate to support growth, though staff noted more targeted and temporary measures would have been more efficient.\n- Public finance indicators (percent of GDP):\n  - General government revenues: 45.3; 43.5; 43.4; 46.8; 47.0; 47.9; 48.0; 48.2; 48.4; 48.7.\n  - General government expenditures: 43.1; 42.8; 43.9; 48.1; 49.2; 49.4; 49.5; 49.9; 50.2.\n  - General government balance: -3.4; 0.5; -0.4; -1.3; -2.2; -1.5; -1.6 (values listed as in source).\n  - General government cyclically-adjusted balance: -2.0; -0.5; -1.4; -1.7.\n  - General government structural balance: 1.1; 0.3; 0.2.\n  - General government gross debt: 22.4; 24.6; 24.5; 24.7; 25.7; 28.1; 28.8; 29.5; 30.1; 30.8; 31.4.\n- Executive Directors’ fiscal guidance:\n  - Noting ample fiscal space and AAA credit risk rating, Directors commended commitment to fiscal discipline and broadly agreed with a moderately expansionary fiscal stance in 2024.\n  - Over the medium term, Directors emphasized the need for fiscal consolidation to address rising spending pressures from aging and climate transition, and to stabilize public debt.\n  - Policy measures recommended: improving spending efficiency and targeting, containing the wage bill, expediting pension reform, careful calibration of tax reforms to avoid revenue losses.\n  - Governance recommendations: complement EU rules with a medium-term objective, consider an operational expenditure rule, and enhance the role of the fiscal council."
    },
    {
      "heading": "Financial sector resilience and housing market",
      "content": "- Financial sector:\n  - The 2024 Financial Sector Assessment Program (FSAP) found the financial sector to be largely resilient against severe shocks.\n  - Directors noted the financial sector is resilient and well‑capitalized and commended progress on implementing FSAP 2017 recommendations.\n  - Suggested measures to bolster resilience: sectoral systemic risk buffers on real estate exposures; activating income‑based measures early in the recovery to tackle structural household indebtedness; considering gradually reducing the maximum LTV limit of 100 percent.\n  - Strengthening the macroprudential policy framework (including reducing potential inaction bias) and continued progress on supervisory, regulatory and oversight frameworks and AML/CFT risk mitigation were recommended.\n- Housing market and affordability:\n  - Directors welcomed authorities’ measures to restore confidence in the housing sector.\n  - Emphasis on orderly rebalancing of the housing market and prioritizing steps to strengthen housing affordability, particularly by expediting measures to raise housing supply."
    },
    {
      "heading": "Structural reforms and productivity",
      "content": "- Directors emphasized sustained efforts to enhance productivity and growth, and welcomed authorities’ policy priorities:\n  - Research and development and innovation.\n  - Reskilling the labor force.\n  - Streamlining regulations.\n  - Facilitating market entry and exit.\n- Labor market and wages:\n  - Directors agreed that enhancing wage flexibility would boost competitiveness and labor mobility."
    },
    {
      "heading": "Balance of payments and external accounts",
      "content": "- Balance of Payments (percent of GDP) indicators:\n  - Current account: 8.9; 8.6; 7.9; 7.6; 6.8; 7.0 (values listed as in source).\n  - Balance on goods: 0.1; -0.8 (values listed as in source).\n  - Balance on services: 33.7; 37.0; 37.3; 37.2; 34.4; 33.9; 33.5; 33.4; 33.2; 33.1.\n  - Net factor income: -27.7; -30.7; -30.2; -29.1; -26.9; -26.3; -25.6; -25.4; -25.2; -25.0.\n  - Balance on current transfers: -0.6.\n- Exchange rates and external price indicators:\n  - U.S. dollars per euro (period averages): 1.12; 1.14; 1.18; 1.05; 1.08; … (as reported).\n  - Nominal effective exchange rate (percent change) and real effective exchange rate (percent change) example: -0.7; -3.0 (as reported)."
    },
    {
      "heading": "Executive Board views and concluding points",
      "content": "- Executive Directors agreed with the thrust of the staff appraisal, welcomed Luxembourg’s economic resilience, strong buffers and the envisaged economic recovery.\n- Directors emphasized continued policy prudence given geopolitical uncertainty and housing vulnerabilities.\n- Key policy priorities reiterated by Directors:\n  - Maintain fiscal discipline while using targeted, temporary measures when expansionary policy is pursued.\n  - Pursue medium‑term fiscal consolidation and reforms to manage aging and climate transition spending pressures.\n  - Strengthen housing supply and affordability measures to rebalance the housing market.\n  - Bolster financial-sector resilience through macroprudential tools and supervisory enhancements.\n  - Advance structural reforms to enhance productivity, innovation, and labor-market flexibility.\n\nSource: IMF Communications Department, Press Release No. 24/209, \"IMF Executive Board Concludes 2024 Article IV Consultation with Luxembourg\", June 7, 2024.\n\n---\n\n\n References\n\n- Luxembourg and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.IMF.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/06/07/pr-24209-luxembourg-imf-executive-board-concludes-2024-art-iv-consultation"
    }
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    "Published: June 7, 2024",
    "On May 29, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Luxembourg.",
    "Luxembourg’s economy contracted in 2023 despite buoyant consumption, mainly due to weak external demand and residential investment.",
    "Growth projections:",
    "Inflation and prices:",
    "Labor market:",
    "Credit and asset prices:",
    "Risks:",
    "Fiscal stance and assessment:",
    "Public finance indicators (percent of GDP):",
    "Executive Directors’ fiscal guidance:",
    "Financial sector:",
    "Housing market and affordability:",
    "Directors emphasized sustained efforts to enhance productivity and growth, and welcomed authorities’ policy priorities:",
    "Labor market and wages:",
    "Balance of Payments (percent of GDP) indicators:",
    "Exchange rates and external price indicators:",
    "Executive Directors agreed with the thrust of the staff appraisal, welcomed Luxembourg’s economic resilience, strong buffers and the envisaged economic recovery.",
    "Directors emphasized continued policy prudence given geopolitical uncertainty and housing vulnerabilities.",
    "Key policy priorities reiterated by Directors:",
    "[Luxembourg and the IMF](http://www.imf.org/external/country/LUX/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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