Luxembourg: 2025 Article IV Consultation-Press Release; and Staff Report

International Monetary Fund

No 2025/123, IMF Staff Country Reports from International Monetary Fund

Abstract: The 2025 Article IV Consultation discusses that Luxembourg’s fundamentals remain strong and economic recovery is projected to slowly gain pace amidst external headwinds. An economic recovery is projected to slowly gain pace amidst external headwinds. Downside risks prevail in the short term. Surprising on the upside, the fiscal balance improved to a surplus of 1 percent of gross domestic product in 2024, boosted by one-off revenues. Given structurally high revenue volatility, prudent fiscal policy should be based on a more efficient use of fiscal space. The financial sector is resilient, with well-capitalized and liquid banks. While the risks are manageable, the housing market, and other pockets of vulnerabilities should continue to be closely monitored. Structural reforms are needed to boost private sector-led growth and sustain living standards. Wage indexation has become a key constraint on competitiveness, and more labor market flexibility is called for. The authorities should also aim at boosting productivity and containing the cost of living by streamlining the regulatory and administrative burden, removing barriers to entry in some sectors, and addressing housing and infrastructure supply bottlenecks.

Keywords: FATF report; executive board assessment; revenue performance; heightened financial market volatility; volatility warrant; GDP growth; labor market rigidity; Labor markets; Financial sector; Loans; Global; Europe (search for similar items in EconPapers)
Pages: 67
Date: 2025-06-05
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