Luxembourg: 2024 Article IV Consultation-Press Release; and Staff Report; and Statement by the Executive Director for Luxembourg

International Monetary Fund

No 2024/155, IMF Staff Country Reports from International Monetary Fund

Abstract: The 2024 Article IV Consultation discusses that Luxembourg’ economy contracted in 2023 despite buoyant consumption, mainly due to weak external demand and residential investment. Inflation is subsiding but underlying measures remain high. Credit growth turned negative as demand dropped and real estate prices declined. The newly elected government has approved a mix of temporary and permanent measures to support purchasing power and housing demand. Gradually easing financial conditions, continuing disinflation and expansionary fiscal policy is expected to help the economy rebound and the financial cycle bottom out. Inflation should decline in 2024, before temporarily increasing in 2025 once administrative price measures expire. The recovery is fragile amid heightened geopolitical tensions. Risks are tilted to the downside, stemming mainly from external demand/supply shocks and a disorderly correction of asset prices, including domestic real estate valuations. Sustained economic growth hinges on raising productivity, which has been stagnant since the Global Financial Crisis. Increasing investment in intangible assets, aligning workers’ skills with the current demands of the economy, reducing administrative burden, and making the wage indexation system more flexible will be key to harnessing productivity gains and bolstering competitiveness.

Keywords: FATF report; Luxembourg economy; executive board assessment; headline inflation; labor productivity growth; Macroprudential policy; Productivity; Income; Financial Sector Assessment Program; Global (search for similar items in EconPapers)
Pages: 70
Date: 2024-06-07
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