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International Monetary Fund
This 2012 Article IV Consultation highlights that economic growth in Luxembourg slowed in 2011 amid the euro area sovereign debt crisis. Reflecting sluggish external demand, economic activity is expected to further weaken, with growth projected to decline to ½ percent in 2012. Executive Directors have welcomed the continued stability of Luxembourg’s economy despite the turbulence in the euro area. They have commended the authorities on measures taken to strengthen the financial sector and to implement recommendations from the Financial Stability Assessment Program update.
International Monetary Fund
Luxembourg's economic and fiscal performance has remained impressive. A proactive policy approach focused on institutional reforms will bolster the economy and public finances to growth reversals. A shift to a more diversified pension system should be a policy priority. Further income tax reforms are desirable. The management of the public sector's holdings of financial assets should be improved. An exceptionally favorable economic environment has blunted Luxembourg's labor market rigidities but reforms are needed. Maintaining effective banking supervision and governance should remain a priority of public policy.
International Monetary Fund. European Dept.
This 2015 Article IV Consultation highlights that Luxembourg’s economic model, emphasizing fiscal stability, openness, firm prudential oversight, and responsiveness to investor needs, is delivering strong growth. Buoyant financial services exports contributed to real growth of close to 3 percent in 2014, with strong job creation. Budget 2015 launched a multi-year fiscal consolidation aimed at offsetting falling revenues from electronic commerce. The economy faces important challenges going forward. Evolving international tax transparency standards, in which Luxembourg is participating fully, could impact the revenue base. Growth is projected at 2.5 percent in 2015.
International Monetary Fund. European Dept.

EXECUTIVE SUMMARY Luxembourg’s main challenge is to strengthen an economic model that has served it well. Growth was close to 3 percent in 2014, and is projected at 2½ percent in 2015, with continued strong job creation. The model emphasizes maintaining fiscal stability and openness, practicing conservative prudential oversight, and responding to investor needs. This combination has been a magnet for international financial business, nowhere more so than in the investment fund industry, where assets under management have more than doubled since 2008, to €3½ trillion. Recent challenges to this model necessitate a proactive approach to adjust to a changing landscape. The authorities’ commitment to positive engagement in the international tax transparency agenda supports a proactive approach. Having adjusted fiscal policy for lower revenues from electronic commerce, they should also address the additional base erosion that could now arise, exploring options to make the tax system more robust. At the same time, they should pursue further reforms to make the pension system more resilient to population aging. These policy initiatives, along with the authorities’ commitment to a modest budget surplus over the medium term, should fortify Luxembourg’s ‘AAA’ sovereign credit standing. Equally, Luxembourg also plans a series of actions to uphold its reputation as a firm and sophisticated financial regulator. These include faster passage of EU banking laws, where the banking union promises to be especially beneficial for Luxembourg, operationalizing a purposeful systemic risk committee, and being a voice for strong cross border oversight. On the latter, effective EU regulatory arrangements for nonbank companies that control banks should form a particular focus, given the large volume of intragroup activity transiting through Luxembourg. Provided the challenges ahead are well managed, growth in the near term could beat staff’s baseline, helped by a firmer euro area recovery. In the medium term, however, the success of the authorities’ initiatives to diversify the economy will play out against a backdrop of lower potential growth. It is doubly important, therefore, that efforts are also underway to better equip workers with relevant skills and to lift youth and women’s participation in the labor force.

International Monetary Fund

This 2012 Article IV Consultation highlights that economic growth in Luxembourg slowed in 2011 amid the euro area sovereign debt crisis. Reflecting sluggish external demand, economic activity is expected to further weaken, with growth projected to decline to ½ percent in 2012. Executive Directors have welcomed the continued stability of Luxembourg’s economy despite the turbulence in the euro area. They have commended the authorities on measures taken to strengthen the financial sector and to implement recommendations from the Financial Stability Assessment Program update.