Abstract
Growth has been strong, benefiting from Luxembourg's major role in intermediating international capital flows, and prospects are good. However, the outlook remains clouded by risks arising from possible global retreat from cross-border integration and policy uncertainty and divergence which could cause financial market volatility; from the international tax transparency and anti-tax avoidance agenda; as well as from new shocks to the euro area economy. Unemployment, moderately high relative to historical standards, mainly reflects skills mismatches, and new jobs have increasingly been taken up by cross-border commuters.
This supplement provides information that has become available since the cut-off date of the staff report’s projections. The thrust of the staff appraisal is unchanged.
Following publication of the preliminary 2016 national accounts, the authorities updated their growth and fiscal projections in the Stability and Growth Program released at end-April. The revised national accounts show somewhat higher growth than projected for 2016 and previous years. In view of the volatile international environment, the authorities expect significant fluctuations of the projected GDP growth around the long-term trend, while staff envisages a gradual convergence to it. The authorities project a somewhat higher unemployment rate over the medium term. Staff’s revised projections imply only small changes relative to the staff report. Luxembourg’s medium-term objective (MTO) has remained a structural fiscal deficit of 0.5 percent of GDP, and the authorities reaffirmed their commitment to keep the gross public debt below 30 percent of GDP over the medium term. The government’s fiscal deficit and public debt projections—underpinned by a strong fiscal surplus of 1.6 percent of GDP in 2016—are consistent with those of the staff report, although the government projections show an increase in the fiscal balance from 2018, partly due to an assumed diminishing cost of the tax reform over time.
Luxembourg: Updated Projections and Fiscal Estimates, 2016–21
Luxembourg: Updated Projections and Fiscal Estimates, 2016–21
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | ||
|---|---|---|---|---|---|---|---|
| Projections | |||||||
| Real GDP growth (percent change) | |||||||
| Staff report | 4.0 | 3.7 | 3.5 | 3.3 | 3.1 | 3.1 | |
| Revised Staff Projections | 4.2 | 3.8 | 3.5 | 3.3 | 3.1 | 3.1 | |
| Authorities’ April Update | 4.2 | 4.4 | 5.2 | 4.4 | 2.8 | 1.9 | |
| Foreign balance (percentage point contribution to growth) | |||||||
| Staff report | 2.2 | 1.0 | 1.0 | 1.1 | 1.0 | 1.0 | |
| Revised Staff Projections | 3.3 | 1.8 | 1.1 | 1.2 | 1.1 | 1.2 | |
| Authorities’ April Update | 3.5 | 0.4 | 2.3 | 2.1 | 1.9 | 1.3 | |
| Unemployment rate (percent, national definition) | |||||||
| Staff report | 6.4 | 5.9 | 5.7 | 5.6 | 5.5 | 5.4 | |
| Revised Staff Projections | 6.4 | 5.9 | 5.6 | 5.4 | 5.3 | 5.3 | |
| Authorities’ April Update | 6.4 | 6.0 | 5.7 | 5.8 | 6.3 | 6.9 | |
| General government balance (percent of GDP) | |||||||
| Staff report | 1.7 | 0.3 | 0.1 | 0.0 | 0.0 | 0.0 | |
| Revised Staff Projections | 1.6 | 0.2 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Authorities’ April Update | 1.6 | 0.2 | 0.3 | 0.5 | 0.9 | 1.2 | |
| General government gross debt (percent of GDP) | |||||||
| Staff report | 22.6 | 23.2 | 23.5 | 23.2 | 23.0 | 22.8 | |
| Revised Staff Projections | 20.0 | 20.8 | 21.5 | 21.5 | 21.3 | 21.3 | |
| Authorities’ April Update | 20.0 | 22.2 | 22.4 | 22.6 | 22.8 | 22.6 | |
Luxembourg: Updated Projections and Fiscal Estimates, 2016–21
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | ||
|---|---|---|---|---|---|---|---|
| Projections | |||||||
| Real GDP growth (percent change) | |||||||
| Staff report | 4.0 | 3.7 | 3.5 | 3.3 | 3.1 | 3.1 | |
| Revised Staff Projections | 4.2 | 3.8 | 3.5 | 3.3 | 3.1 | 3.1 | |
| Authorities’ April Update | 4.2 | 4.4 | 5.2 | 4.4 | 2.8 | 1.9 | |
| Foreign balance (percentage point contribution to growth) | |||||||
| Staff report | 2.2 | 1.0 | 1.0 | 1.1 | 1.0 | 1.0 | |
| Revised Staff Projections | 3.3 | 1.8 | 1.1 | 1.2 | 1.1 | 1.2 | |
| Authorities’ April Update | 3.5 | 0.4 | 2.3 | 2.1 | 1.9 | 1.3 | |
| Unemployment rate (percent, national definition) | |||||||
| Staff report | 6.4 | 5.9 | 5.7 | 5.6 | 5.5 | 5.4 | |
| Revised Staff Projections | 6.4 | 5.9 | 5.6 | 5.4 | 5.3 | 5.3 | |
| Authorities’ April Update | 6.4 | 6.0 | 5.7 | 5.8 | 6.3 | 6.9 | |
| General government balance (percent of GDP) | |||||||
| Staff report | 1.7 | 0.3 | 0.1 | 0.0 | 0.0 | 0.0 | |
| Revised Staff Projections | 1.6 | 0.2 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Authorities’ April Update | 1.6 | 0.2 | 0.3 | 0.5 | 0.9 | 1.2 | |
| General government gross debt (percent of GDP) | |||||||
| Staff report | 22.6 | 23.2 | 23.5 | 23.2 | 23.0 | 22.8 | |
| Revised Staff Projections | 20.0 | 20.8 | 21.5 | 21.5 | 21.3 | 21.3 | |
| Authorities’ April Update | 20.0 | 22.2 | 22.4 | 22.6 | 22.8 | 22.6 | |