Detailed Review of Luxembourg’s Economy
Luxembourg’s economy is dominated by the financial sector (approximately 50% of GDP) and by tax benefits that attract foreign investors. But this strength can also be a weakness, and the 2008 global financial crisis has not spared the country, which was plunged into recession. Nevertheless, due to strong domestic demand and public investment, Luxembourg has been able to manage a quiet return to growth, estimated at 3% for 2014.
The country relies on its highly developed tertiary sector (83% of GDP) and on the finance and real estate sectors. The country is the world’s 2nd largest investment fund destination. The industrial sector accounts for 16% of GDP and focuses primarily on the production of iron and steel, as well as chemicals, plastics and engineering. Finally, the primary sector, agriculture, is insignificant with less than 1% of GDP. The agricultural sector focuses on wine, cereals and potatoes.
Due to its geographical location, Luxembourg trades almost exclusively with its European neighbours including the export of industrial products. For some time, the Government has been trying to diversify its exports by creating business partnerships with Asian countries.
Luxembourg’s Economic Strengths
- Very easy to invest in the country.
- Very open economy.
- Tax advantages and incentives.
- Luxembourg is one of the largest financial centres in the EU.
- Free movement of foreign capital.
- Well-developed financial services infrastructure.
- Skilled workforce.
Luxembourg’s Economic Weaknesses
- High cost of living.
- Demanding consumers.
Luxembourg is currently trying to diversify its economy, which is currently overly dependent upon financial services. It hopes to diversify its economy and attract high value business especially in the electronics sector.