Portrait of the Luxembourg economy
Luxembourg's economy is one of the most dynamic in Europe and one of the most open in the world. In global rankings about territorial competitiveness, digitalisation and innovation, it regularly ranks in the top 10. Moreover, it is considered to be the economic powerhouse of the Greater Region, territory composed of regions from 4 countries. Even though its financial centre remains the economy's mainstay, much effort has gone into diversification. As a result, Luxembourg is today a logistics hub, as well as a leader in satellite technology and digitalisation. All of this is made possible day in day out by a motivated and productive international workforce.
Global economic performance
Luxembourg's reputation as a resilient and stable powerhouse precedes it. The country is not only an internationally renowned financial centre, it is also regularly ranked in international benchmarks among the top 10 best performing countries. Deeply embedded within the European Union, Luxembourg has established itself as one of the EU's best performing countries concerning territorial competitiveness, digitalisation and innovation. This is showcased by its gross domestic product (GDP) per capita, which is the highest in the world according to the International Monetary Fund, as well as its AAA-rating, attributed regularly by all big rating agencies.
Thus, Standard&Poor's, Fitch, DBRS and Moody have all been attribution the coveted AAA-rating to Luxembourg throughout economic crisis and uncertain times, expressing continuous trust in the country's ability to remain resilient in the face of a difficult international outlook. Other global benchmarks confirm these strengths (2021 rankings):
- World Competitiveness Ranking: 5th
- Index of Economic Freedom: 7th
- Digital Economy and Society Index: 8th
- World Digital Competitiveness Ranking: 8th
- European Innovation Scoreboard: 7th
- Global Innovation Index: 11th
Among the strongpoints, these rankings include its economic and political stability, the workforce's productivity and expertise, its international openness, its digital infrastructure and competences, as well as its innovation-centered regulatory framework and R&D-friendly environment.
Weak point include comparatively high labour costs, fiscal competitiveness, a late development of egovernment and a comparatively low amount of economic diversification.
Overall, Luxembourg's economic strength resides foremost in its stability, its international openness and its ability to absorb and rebound from macro-economic shocks and adapt to a changing environment.
From growing crops to growing entrepreneurship
Luxembourg's economy underwent massive changes in its past. The country evolved from an agriculture and crafts-driven economy to an industrial powerhouse in the late 19th century, becoming home to the world's leading steel producer in the mid-20th century. The steel industry's lasting impact can be admired in Luxembourg's southern region, called the Minett, which has become famous for its architecture and industrial relics.
The success of this sector also drove the country's economic development for a long time. However, after the first steel crisis in the 1970s, successive governments undertook efforts of economic diversification by creating a fiscally advantageous environment that soon made Luxembourg one of the biggest financial centres in the world.
Main sectors of Luxembourg's economy
Today, the financial sector accounts for 25% of the country's GDP. Its outlook is staunchly international: Luxembourg provides an operational hub for many international financial institutions. Its international and multilingual workforce runs cross-border activities such as private and corporate banking, fund administration and custody, wealth management and treasury services effectively. For many non-EU stakeholders, Luxembourg has come to be a key gateway to the EU, as they benefit from a direct access to the EU single market area.
In order to increase the resilience of Luxembourg's economy, recent governments have also encouraged economic diversification and transformation through a number of initiatives that are starting to bear fruit:
- Spaceresources.lu: Luxembourg is the first European country to have implemented a legal framework for the utilisation of resources mined on asteroids. Together with its already existing focus on satellite technologies, this has created a new center of gravity for startups and established companies seeking to strike gold in this sector.
- Green Finance: The Luxembourg Green Exchange (LGX) is the only stock exchange in the world to trade exclusively sustainable bonds. Founded in 2016, it accepts only issuers and asset managers that provide full disclosure and fulfil their reporting obligations in the realm of labelled or unlabelled securities.
- Luxembourg Cluster Initiative: Innovation-driven as Luxembourg's economy is, creating networks between business and research has become a necessity. This Luxinnovation-managed initiative brings together businesses, research and development hubs and public stakeholder in defined sectors, in order to promote growth, i.e. automotive and wood industries, healthtech, creative industries, cleantech, logistics and materials and manufacturing.
- House of Startups: Imagine having a one-stop shop to go to when you want to develop your groundbreaking idea. This house does not only unite a range of incubators under one roof, it also enjoys direct access to movers and investors.
In general, Luxembourg remains a knowledge-driven economy, with the financial and R&D sectors making up most of its economic prowess. However, sectors developing cutting-edge technologies have been massively supported in recent years, leading to a thriving ecosystem of businesses, investors and public stakeholders.
Over 150 years of immigration and integration
About half of Luxembourg's population does not have the Luxembourgish nationality, the result of one and a half centuries of immigration. Starting with Germans and Italians in the 19th century, wave after wave of people flocked to Luxembourg to find work. Today, the Portuguese and French communities make up the biggest part of the international community, which also includes large Anglo-American and Scandinavian communities.
Luxembourg's society has integrated these communities over time, creating a stable and amazing mix of nationalities and cultures on a small territory that has not only driven its reputation as a welcoming country, but also driven its rise as an economic powerhouse.
A strong and multinational workforce
Luxembourg's international, multilingual and skilled workforce is the key to its economic success and resilience.
In total, 47.2% (2021) of the resident population do not have the Luxembourgish nationality. This includes communities which have been associated with Luxembourg for a long time – i.e. French, German, Belgian, but also Portuguese and Italian communities – as well as expats who are working for international institutions or companies in the Grand Duchy. Moreover, the country welcomes close to 200,000 cross-border employees every day – for a population approaching 640,000. In other words: Luxembourg has not just been the place where the Schengen Agreements were signed, it embodies its spirit.
Where people from many national and cultural backgrounds interact, communication is a key element to success. While Luxembourg is a trilingual country (Luxembourgish, French, German), many other languages are spoken on a daily basis. The large Portuguese and Italian communities are certainly contributing to the country's linguistic wealth, while English and French having become vehicular languages used to communicate every day. This is supported by Luxembourg's education system, which heavily relies on teaching German and French, but also gives students many opportunities to learn other languages.
It is thus without surprise, that a number of benchmarks regularly put Luxembourg among the top spots of their rankings, for instance the IMD World Talent Ranking or the INSEAD Global Talent Competitiveness Index.
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