IMF Executive Board Concludes 2026 Article IV Consultation with Luxembourg
IMF News, June 30, 2026
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- Published: June 30, 2026
Overview and Recent Developments
- Growth edged up to 0.6 percent in 2025, supported by expansionary fiscal policy and real income gains.
- Economic growth remains tepid and uneven with the public sector playing a dominant role.
- The labor market has softened, with unemployment rising above 6 percent.
- Headline inflation rose above 2.5 percent in early 2026 due to higher energy prices, despite new electricity subsidies.
- The fiscal balance deteriorated sharply in 2025 as spending significantly outpaced revenue.
- The financial system has remained resilient; banks and non-banks maintain high capital and liquidity buffers.
- Asset quality in the corporate sector is gradually improving, with remaining pockets of vulnerability from the real estate sector.
- Heightened uncertainty from the war in the Middle East is weighing on the outlook.
Outlook and Risks
- GDP growth projections:
- 2026: 1.2 percent
- 2027: 1.7 percent
- Growth is expected to gradually converge toward potential (around 2 percent) over the medium term.
- Inflation projections:
- 2026: 2.6 percent (driven by higher energy prices, automatic wage indexation, and second-round effects)
- Medium-term: easing toward 2 percent
- Downside risks highlighted:
- Prolonged conflict in the Middle East
- Persistently high energy prices
- Weaker EU growth
- Financial market stress
- Domestic challenges in the construction sector and the labor market
- Upside scenario:
- Faster progress on EU single market reform could strengthen growth prospects.
Fiscal Assessment and Recommendations
- Current fiscal stance:
- Fiscal deficit expected to widen further under current policies amid structural increases in spending and a softening revenue growth.
- Policy recommendations:
- Implement a moderate fiscal adjustment focusing on containing current expenditure to preserve buffers, stabilize public debt, and create room for growth-enhancing investment over the medium term.
- Make the composition of spending more growth-friendly and make energy support measures more targeted to vulnerable groups.
- Contain current expenditure, improve spending efficiency, and broaden the tax base.
- Offset measures should accompany planned income tax reform to contain its fiscal cost.
- Strengthen the fiscal framework, including through an enhanced national fiscal rule and stronger fiscal risk analysis.
- Recent reforms:
- Directors welcomed the recent pension reform.
Financial Sector Assessment and Recommendations
- System resilience:
- Financial system continued to demonstrate resilience to elevated market stress episodes.
- Banks and non-banks maintain high capital and liquidity buffers.
- Remaining vulnerabilities:
- Pockets of vulnerability in the real estate sector.
- Elevated uncertainty and geopolitical risks require continued vigilance given Luxembourg’s large, outward-oriented, and highly interconnected financial sector.
- Policy recommendations:
- Continued close monitoring and proactive management of liquidity, leverage, funding, and concentration risks across banks, investment funds, and insurers.
- Support further recalibration of the macroprudential framework as the financial cycle enters an early expansion phase.
- Welcome progress in implementing the 2024 FSAP recommendations.
Structural Reforms and Competitiveness
- Directors underscored structural reforms to revive productivity and competitiveness and rebalance growth toward the private sector.
- Recommended actions:
- Accelerate digital and AI adoption.
- Strengthen support for innovation.
- Address skill mismatches through education, reskilling, and upskilling policies.
- Increase labor market flexibility.
- Ease housing pressures through supply-side reforms and land mobilization.
- Reduce administrative and regulatory burden on firms.
- Advance energy diversification and deeper EU single market integration, including progress on the Savings and Investment Union.
Key Statistics and Selected Economic Indicators (2024–28)
- Real Economy (percent change)
- Gross domestic product: 0.4 (2024), 0.6 (2025), 1.2 (2026), 1.7 (2027), 2.1 (2028)
- Total domestic demand: 2.5 (2024), 2.0 (2025), 1.5 (2026), 2.2 (2027), (2028 not listed)
- Private consumption: 3.2 (2024)
- Public consumption: 4.9 (2024), 3.7 (2025), 2.6 (2026)
- Gross investment: -2.0 (2024), -1.2 (2025), -0.8 (2026)
- Foreign balance 1/: -1.1 (2024), -0.7 (2025), -0.5 (2026), -0.1 (2027)
- Exports of goods and nonfactor services: -12.2 (2024), -1.4 (2025)
- Imports of goods and nonfactor services: -13.6 (2024), 1.8 (2025)
- Labor Market (thousands, unless indicated)
- Unemployed (average): 18.0 (2024), 19.0 (2025), 20.0 (2026), 21.0 (2027), 21.2 (2028)
- (Percent of total labor force): 5.7 (2024), 6.0 (2025), 6.2 (2026), 6.4 (2027)
- Resident employment: 295.6 (2024), 299.2 (2025), 304.0 (2026), 307.8 (2027), 312.8 (2028)
- Total employment: 516.0 (2024), 522.2 (2025), 528.4 (2026), 535.4 (2027), 544.5 (2028)
- (Percent change): 1.0 (2024), 1.6 (2025), 1.3 (2026)
- Prices and Costs (percent change)
- GDP deflator: 4.6 (2024), 3.3 (2025), 2.3 (2026)
- CPI (harmonized), p.a.: 4.3 (2024)
- CPI core (harmonized), p.a.: 1.9 (2024)
- CPI (national definition), p.a.: (value not listed)
- Public Finances (percent of GDP)
- General government revenues: 47.7 (2024), 47.1 (2025), 46.9 (2026), 47.2 (2027), 46.4 (2028)
- General government expenditures: 46.8 (2024), 49.1 (2025), 48.8 (2026), 49.2 (2027), 49.3 (2028)
- General government balance: -1.9 (2024), -3.0 (2025)
- General government structural balance: 0.0 (2024), -2.5 (2025), -2.3 (2026), -3.4 (2027)
- General government gross debt: 26.3 (2024), 26.5 (2025), 28.2 (2026), 29.8 (2027), 32.0 (2028)
- Balance of Payments (percent of GDP)
- Current account: 7.1 (2024), 5.3 (2025), 4.7 (2026), 4.4 (2027)
- Balance on services: 36.3 (2024), 33.8 (2025), 35.1 (2026), 35.4 (2027), 35.3 (2028)
- Net factor income: -30.6 (2024), -29.9 (2025), -31.8 (2026), -32.3 (2027), -32.4 (2028)
- Balance on current transfers: -0.6 (2024)
- Exchange Rates, Period Averages
- U.S. dollar per euro: 1.08 (2024), 1.13 (2025), …
- Nominal effective rate (2010=100): 106.3 (2024), 107.8 (2025)
- Real effective rate (CPI based; 2010=100): 98.6 (2024), 99.5 (2025)
- Credit Growth and Interest Rates
- Nonfinancial private sector credit (eop, percent change) 2/: -5.3 (2024), 0.8 (2025), 5.0 (2026), 4.5 (2027)
- Government bond yield, annual average (percent): 2.7 (2024), 2.9 (2025)
- Potential Output and Output Gap
- Output gap (percent deviation from potential): -0.2 (2024)
- Potential output growth: 0.7 (2024), 1.4 (2025)
IMF Executive Board Concludes 2026 Article IV Consultation with Luxembourg, Press Release No. 26/232 (June 30, 2026).