{
  "title": "IMF Executive Board Concludes 2025 Article IV Consultation with Luxembourg",
  "publication": "IMF News, June 5, 2025",
  "sourceUrl": "https://www.imf.org/en/news/articles/2025/06/04/pr-25177-luxembourg-imf-concludes-2025-art-iv-consultation",
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  "summary": "On May 30, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the 2025 Article IV Consultation with Luxembourg, and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.",
  "publishDate": "2025-06-05",
  "sections": [
    {
      "heading": "Summary and Outlook",
      "content": "- On May 30, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the 2025 Article IV Consultation with Luxembourg and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.\n- Luxembourg’s fundamentals remain strong, but recent economic performance has been lackluster and the projected recovery faces headwinds from weaker external demand and tighter and/or more volatile financial conditions.\n- Growth projections:\n  - GDP growth: -0.7 (2023), 1.0 (2024), 1.6 (2025), 2.2 (2026).\n  - Total domestic demand: 1.1 (2023), 0.1 (2024), 1.7 (2025), 2.6 (2026).\n  - Foreign balance contribution to GDP growth: -1.4 (2023), 0.0 (2024), 0.4 (2025).\n- Labor market and prices:\n  - Unemployed (average, thousands): 16.2 (2023), 18.0 (2024), 19.5 (2025), 20.1 (2026).\n  - Unemployment (percent of total labor force): 5.2 (2023), 5.7 (2024), 6.1 (2025), 6.2 (2026).\n  - Total employment (levels): 512.0 (2023), 517.8 (2024), 524.8 (2025), 533.9 (2026).\n  - GDP deflator (percent change): 6.3 (2023), 1.2 (2024).\n  - CPI (harmonized), p.a.: 2.9 (2023), 2.3 (2024).\n  - CPI core (harmonized), p.a.: 3.9 (2023), 2.5 (2024).\n  - CPI (national definition), p.a.: 3.7 (2023), 2.0 (2024).\n- Risks:\n  - Short-term downside risks predominate (weaker external demand, tighter/volatile financial conditions, trade policy uncertainty, geopolitical tensions, possibly higher interest rates for longer).\n  - Medium-term growth risks are more balanced, but fiscal risks are assessed to be high.\n- Structural concerns: declining productivity, domestic real estate sector challenges, aging-related fiscal pressures, and the large share of cross-border workers contributing to external position volatility."
    },
    {
      "heading": "Fiscal Assessment and Recommendations",
      "content": "- 2024 fiscal outcome:\n  - Fiscal balance improved to a surplus of 1 percent of GDP in 2024, boosted by one-off revenues.\n  - General government revenues (percent of GDP): 46.2 (2023), 47.9 (2024), 47.4 (2025), 47.6 (2026).\n  - General government expenditures (percent of GDP): 47.0 (2023), 46.9 (2024), 48.3 (2025), 49.0 (2026).\n  - General government gross debt (percent of GDP): 25.0 (2023), 26.3 (2024), 26.7 (2025), 27.6 (2026).\n- IMF advice:\n  - Prudent fiscal policy should prioritize a more efficient use of fiscal space given structurally high revenue volatility and low fiscal multipliers.\n  - A less expansionary fiscal stance in 2025 would have been preferable.\n  - Scope to review effectiveness and targeting of current measures while preserving savings from revenue overperformance or budget execution.\n  - Medium-term expenditure path is broadly appropriate but needs measures to contain the growth of the wage bill, enhance spending efficiency, and avoid further erosion of the tax base.\n  - Increase revenue resilience by diversifying revenue sources due to a concentrated and volatile revenue base.\n  - Strengthen medium-term anchoring: implement the planned national fiscal rule combining a debt anchor with a net spending ceiling that accounts for revenue uncertainty and allows appropriate flexibility.\n  - Reform the budgeting framework and strengthen the fiscal council to make the new framework more effective.\n- Pension reforms:\n  - Public consultations on pension reform are welcome.\n  - Early reforms needed, including reducing the generosity of benefits—the highest in Europe—increasing both the effective and statutory retirement ages, and a well-calibrated increase in contributions to minimize negative labor market impacts."
    },
    {
      "heading": "Financial Sector and Macroprudential Policy",
      "content": "- Financial sector soundness:\n  - Financial sector is resilient, with well-capitalized and liquid banks; 2024 FSAP found the financial sector sound and well-diversified.\n  - Some deterioration in asset quality observed; persistent solvency and liquidity risks in the corporate sector—especially in real estate—warrant close monitoring.\n- Nonbank financial sector:\n  - Large nonbank financial sector (notably OFI sector) has pockets of liquidity mismatches and leverage; a better understanding of OFI intermediation role is needed.\n- IMF recommendations:\n  - Continue ensuring adequate provisioning, collateral valuation, and loss absorption capacity.\n  - Prioritize continued oversight of the nonbank financial sector.\n  - Macroprudential stance:\n    - Current CCyB level is appropriate.\n    - If recovery firms, strengthen releasable capital buffers and address household indebtedness by introducing income-based measures in line with FSAP recommendations.\n    - If credit pressure continues, some loosening of the CCyB could be envisaged.\n  - Strengthen macroprudential policy framework, building on progress in implementing 2024 FSAP recommendations for banks and investment funds."
    },
    {
      "heading": "Structural Reforms to Support Private Sector-Led Growth",
      "content": "- Key constraints and recommended reforms:\n  - Wage indexation: identified as a key constraint on competitiveness; increase labor market flexibility.\n  - Boost productivity and contain cost of living by streamlining regulatory and administrative burden, removing barriers to entry in some sectors, and addressing housing and infrastructure supply bottlenecks.\n  - Capitalize on comparative advantages in AI adoption and financial sector development while minimizing transition costs.\n  - Recent measures to enhance technology diffusion and ongoing upskilling programs are welcome.\n- Policy aim: promote private sector-led growth and sustain living standards through targeted structural reforms and investment incentives."
    },
    {
      "heading": "Balance of Payments and External Position",
      "content": "- Current account (percent of GDP): 11.2 (2023), 13.8 (2024), 8.8 (2025), 7.8 (2026).\n- Balance on services (percent of GDP): 43.5 (2023), 43.6 (2024), 42.9 (2025), 42.0 (2026).\n- Net factor income (percent of GDP): -31.5 (2023), -31.1 (2024), -35.5 (2025), -35.4 (2026).\n- IMF assessment:\n  - Luxembourg’s current external position is assessed to be substantially stronger than the level implied by medium-term fundamentals, but this assessment is subject to limitations due to the country’s specific features (small open economy, global financial center, large share of cross-border workers) that make the external position volatile."
    },
    {
      "heading": "Key Statistics (selected exact figures from Table 1)",
      "content": "- Real Economy (percent change):\n  - Gross domestic product: -0.7 (2023); 1.0 (2024); 1.6 (2025); 2.2 (2026).\n  - Total domestic demand: 1.1 (2023); 0.1 (2024); 1.7 (2025); 2.6 (2026).\n  - Foreign balance 1/: -1.4 (2023); 0.0 (2024); 0.4 (2025); (2026 not listed).\n- Labor Market:\n  - Unemployed (average, thousands): 16.2 (2023); 18.0 (2024); 19.5 (2025); 20.1 (2026).\n  - Unemployment (percent of total labor force): 5.2 (2023); 5.7 (2024); 6.1 (2025); 6.2 (2026).\n  - Total employment (levels): 512.0 (2023); 517.8 (2024); 524.8 (2025); 533.9 (2026).\n- Public finances (percent of GDP):\n  - General government revenues: 46.2 (2023); 47.9 (2024); 47.4 (2025); 47.6 (2026).\n  - General government expenditures: 47.0 (2023); 46.9 (2024); 48.3 (2025); 49.0 (2026).\n  - General government gross debt: 25.0 (2023); 26.3 (2024); 26.7 (2025); 27.6 (2026).\n- Balance of Payments:\n  - Current account: 11.2 (2023); 13.8 (2024); 8.8 (2025); 7.8 (2026).\n- Exchange rates:\n  - U.S. dollar per euro (period averages): 1.08 (2023); … (2024).\n- Credit and yields:\n  - Nonfinancial private sector credit (eop, percent change) 2/: -2.9 (2023); -4.7 (2024); 3.8 (2025).\n  - Government bond yield, annual average (percent): 3.1 (2023); 2.7 (2024).\n- Potential and output gap:\n  - Output gap (percent deviation from potential): -2.0 (2023); -2.1 (2024); -1.6 (2025).\n\nIMF Communications Department: \"IMF Executive Board Concludes 2025 Article IV Consultation with Luxembourg\", June 5, 2025.\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- www.imf.org/luxembourg\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/2025/06/04/pr-25177-luxembourg-imf-concludes-2025-art-iv-consultation"
    }
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    "Published: June 5, 2025",
    "On May 30, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the 2025 Article IV Consultation with Luxembourg and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.",
    "Luxembourg’s fundamentals remain strong, but recent economic performance has been lackluster and the projected recovery faces headwinds from weaker external demand and tighter and/or more volatile financial conditions.",
    "Growth projections:",
    "Labor market and prices:",
    "Risks:",
    "Structural concerns: declining productivity, domestic real estate sector challenges, aging-related fiscal pressures, and the large share of cross-border workers contributing to external position volatility.",
    "2024 fiscal outcome:",
    "IMF advice:",
    "Pension reforms:",
    "Financial sector soundness:",
    "Nonbank financial sector:",
    "IMF recommendations:",
    "Key constraints and recommended reforms:",
    "Policy aim: promote private sector-led growth and sustain living standards through targeted structural reforms and investment incentives.",
    "Current account (percent of GDP): 11.2 (2023), 13.8 (2024), 8.8 (2025), 7.8 (2026).",
    "Balance on services (percent of GDP): 43.5 (2023), 43.6 (2024), 42.9 (2025), 42.0 (2026).",
    "Net factor income (percent of GDP): -31.5 (2023), -31.1 (2024), -35.5 (2025), -35.4 (2026).",
    "IMF assessment:",
    "Real Economy (percent change):",
    "Labor Market:",
    "Public finances (percent of GDP):",
    "Balance of Payments:",
    "Exchange rates:",
    "Credit and yields:",
    "Potential and output gap:",
    "[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/)",
    "[www.imf.org/luxembourg](http://www.imf.org/luxembourg)",
    "[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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