COMMISSION STAFF WORKING DOCUMENT Country Report Luxembourg 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: Luxembourg, economic situation, green economy, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 515 final  COMMISSION STAFF WORKING DOCUMENT Country Report Luxembourg 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2020) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Reform priorities 

3.1.  Public finances and taxation 
3.2.  Financial sector 
3.3.  Labour market, education and social policies 

3.4. Competiveness and Investment 
3.5.  Environmental sustainability 

Annex A: Overview Table 

Annex B: Commission Debt Sustainability Analysis and Fiscal Risks 

Annex C: Standard Tables 

Annex D: Investment guidance on Just Transition Fund 2021-2027 for Luxembourg 

Annex E: Progress towards the Sustainable Development Goals (SDGs) 

References 

LIST OF TABLES 

Table 1.1: 
Table 2.1: 
Table 3.2.1: 
Table 3.2.2: 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 
Table C.6: 
Table E.1: 

Key economic and financial indicators 

Overall assessment of progress with 2019 CSRs - Luxembourg 

Key Financial Performance indicators 

Key Insurance Figures 

Financial market indicators 

Headline Social Scoreboard indicators 

Labour market and education indicators 

Social inclusion and health indicators 

Product market performance and policy indicators 

Green growth 

Indicators measuring Luxembourg’s progress towards the SDGs 

1 

4 

8 

17 

21 

21 
25 
33 
44 
54 

59 

64 

65 

71 

72 

77 

16 
19 
26 
28 
65 
66 
67 
68 
69 
70 
72 

 
 
 
 
LIST OF GRAPHS 

8 
8 
9 
9 
11 
11 
12 
13 
13 
14 
17 

24 
25 
25 
26 
27 
29 
29 
30 
31 

33 
34 
35 
36 
44 
44 
48 
48 
49 

Real GDP growth (y-o-y %) with contributions and output gap 

Employment growth cumulated  and contributions by residence (2000=0) 

Real GDP level relative to 1995 (1995 = 0) and contributions (pps cumulated) 

Real GDP level relative to 1995  (1995 = 0) and contributions (pps cumulated) 

Labour productivity level relative to 1995 and contributions (percentage points) 

Graph 1.1: 
Graph 1.2: 
Graph 1.3: 
Graph 1.4: 
Graph 1.5: 
Graph 1.6: 
Graph 1.7: 
Graph 1.8: 
Graph 1.9: 
Graph 1.10:  OUTSTANDING LOANS TO THE NON-FINANCIAL PRIVATE SECTOR (YoY %) 
Graph 2.1: 
Graph 3.1.1:  Outgoing interest payments in the EU and share going to offshore financial centres.  

Foreign direct investment position, gross components - Luxembourg (euro trillion) 

Luxembourg - Level of implementation today of 2011-2019 CSRs 

Current account, gross components - Luxembourg. 

Contributions to potential growth - Luxembourg 

Difference between GDP and GNI (euro billion) 

Average 2013-2017, (€ billion) 

Graph 3.2.1:  Five main open-end funds jurisdictions, Q2 2019 (% of world total net assets) 
Graph 3.2.2:  Persons employed in the financial sector 
Graph 3.2.3:  Luxembourg banks - Aggregate profits and losses 
Graph 3.2.4:  Net assets under management, € trillion 
Graph 3.2.5:  Non-Financial Corporations Indebtedness Ratios 
Graph 3.2.6:  Key households indebtedness ratios 
Graph 3.2.7:  Evolution of mortgage loans and real housing prices 
Graph 3.2.8:  Evolution of housing prices compared to valuation benchmarks 
Graph 3.3.1:  Activity, unemployment, long-term unemployment, youth unemployment and NEET 

rates 

Graph 3.3.2:  Unemployment rate and potential additional labour force 
Graph 3.3.3:  Employment rate by educational attainment 
Graph 3.3.4:  Dispersion of employment rates by level of education 
Graph 3.4.1:  Labour productivity evolution (2010=100) 
Graph 3.4.2:  Share of services in final demand 
Graph 3.4.3:  Evolution and composition of the GVA created by the ICT sector 
Graph 3.4.4:  Labour productivity growth in information and communication technologies (ICT) 
Graph 3.4.5:  Evolution of the GVA created by the logistics sector 

2 

 
 
 
LIST OF BOXES 

Box 2.1: EU Funds and Programmes to address structural challenges and to foster growth and 

competitiveness in Luxembourg 

Box 3.3.2: < Monitoring performance in light of the European Pillar of Social Rights > 

Box 3.3.3: Labour shortages and skills gaps in Luxembourg’s labour market in a multidimensional 

perspective 

Box 3.4.4: Investment challenges and reforms in Luxembourg 

20 
39 

42 
45 

3 

 
 
 
 
EXECUTIVE SUMMARY 

Whereas growth prospects remain shaped by a 
less  supportive  external  environment,  to  which 
the  economy  is  highly  sensitive,  Luxembourg 
has  made  some  progress  in  diversifying  its 
economy,  potentially  easing  the  way  to  a  more 
resilient  growth  path.  Some  progress  was 
achieved  by  focusing  investment  on  fostering 
digitalisation  and  innovation,  stimulating  skills 
development and developing the transport system. 
The  resilience  of  the  economy  would  be  further 
strengthened  by  encouraging  private  investment 
and 
and 
technological 
further 
innovation  among 
improving  sustainable  transport  infrastructure  and 
housing supply. The country could also bolster its 
economy  and 
for 
sustainable  growth  that  benefits  the  whole  of 
society  by  ensuring  that  the  labour  supply  and 
skills  levels  match  labour  market  needs.  This,  in 
turn,  would  help  to  better  address  the  long-term 
health of government finances (1).  

firms,  while  also 

the  conditions 

diffusion 

fostering 

improve 

Economic  growth  has  slowed  and  is  set  to 
stabilise.  After  reaching  3.1  %  in  2018,  GDP 
growth  is  estimated  to  have  slowed  to  2.6  %  in 
2019. It was driven by stronger domestic demand, 
partly  offsetting  the  weaker  contribution  from  the 
external  sector.  Consumer  spending  growth  also 
strengthened in 2018, building on an improvement 
in 
labour  market  and  higher  disposable 
incomes, resulting from taxation reforms and wage 
indexation.  

the 

less  dynamic  growth 

Despite  a 
trend, 
Luxembourg’s economy is projected to continue 
outpacing growth in the EU as a whole. Growth 
in  Luxembourg’s  annual  real  GDP  (adjusted  for 
inflation) averaged 3.2% in the period 2010-2018, 
compared  with  an  EU  average  of  1.4%.  The 
economy  is  set  to  continue  growing  at  a  steady 
pace over the coming years. Against a backdrop of 
global  uncertainty,  regulatory  and  technological 
changes,  and  weak  profit  expectations,  business 
investment is expected to remain subdued, despite 

(1)  This report assesses Luxembourg’s economy in light of the 
European  Commission’s  Annual  Sustainable  Growth 
Strategy,  published  on  17  December  2019.  In 
this 
document, the Commission sets out a new strategy on how 
to address not only the short-term economic challenges but 
also  the  economy's  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions:  environmental  sustainability,  productivity 
gains, fairness and macroeconomic stability. 

4 

favourable  financing  conditions.  By  contrast, 
public investment may increase faster. 

Luxembourg’s  government  finances  remain 
sound  but  concerns  remain  for  the  long  term. 
The  general  government  balance  is  estimated  to 
have  posted  a  surplus  of  around  2.7%  of  GDP  in 
2019  and  it  is  forecast  to  remain  in  surplus  in 
2020.  General  government  debt  is  expected  to 
continue to fall in 2020, from an already low level 
of around 20% of GDP in 2019. Concerns remain 
regarding  the  long-term  sustainability  of  public 
finance.  From  now  until  2070,  Luxembourg  is 
expected  to  face  one  of  the  sharpest  increases 
among the EU countries in ageing-related spending 
(pensions,  long-term  care,  and  healthcare  costs). 
With  no  policy  change,  this  would  have  a  major 
impact on public debt.  

and 

housing 

remains 

relatively  weak 

in 
Investment 
transport 
sustainable 
infrastructure,  research  and  innovation,  and 
digitalisation,  especially  in  the  business  sector. 
This  might  slow  down 
the  development  of 
activities  that  add  higher  value  to  the  economy. 
Greater 
research, 
technological  innovation  and  digitalisation  may 
ease  the  transition  to  a  data-driven  economy. 
Investment  in  sustainable  housing  is  insufficient 
for  the  level  of  demand,  and  housing  prices  have 
increased  further.  Growth  that  benefits  all  of 
society  might  largely  depend  on  education  and 
lifelong learning. 

investment 

private 

in 

limited (2) 
Overall,  Luxembourg  has  made 
progress in addressing the 2019 country-specific 
recommendations.  

There  has  been  some  progress  in  the  following 
area: 

  Focusing 

policy 

economic 

to 
investment  on  fostering  digitalisation  and 
innovation, stimulating skills development and 
improving sustainable transport. 

related 

There  has been  limited  progress in the  following 
areas:  

(2)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
country-specific  recommendation 
the 
overview table in the Annex. 

is  presented 

in 

 
 
                                                           
                                                           
 

Increasing  employment  among  older  people, 
by  enhancing  their  employment  opportunities 
and  employability,  and  further  limiting  early 
retirement.  

  Further reducing regulatory restrictions in the 
business  services  sector.  Despite  some  recent 
changes,  such  restrictions  remain  above  the 
EU average in most regulated professions.  

 

Increasing  the  housing  supply,  including  by 
increasing  incentives  and  lifting  barriers  to 
build. 

  Addressing features of the tax system that may 
facilitate aggressive tax planning, in particular 
by means of outbound payments. 

There has been no progress in the following area: 

 

Improving  the  long-term  sustainability  of  the 
pension  system,  including  by  further  limiting 
early retirement. 

Luxembourg  performs  well  overall  on  most 
indicators of the Social Scoreboard supporting the 
European  Pillar  of  Social  Rights.  The  labour 
market is performing rather well, and indicators on 
inequality,  poverty  and  social  exclusion  remain 
close  to  or  better  than  the  EU  average,  despite 
some  signs  of  weakening.  Significant  skills 
shortages have emerged recently in certain sectors 
and  school  pupils’  opportunities  are  still  strongly 
influenced by their socio-economic status. 

Luxembourg’s progress towards its national targets 
under  the  Europe  2020  strategy  paints  a  mixed 
picture. The employment rate target of 73% is still 
out  of  reach  despite  substantial  job  creation. 
Luxembourg  almost  meets  the  municipal  waste 
recycling target of 50% and is broadly on track to 
reach  the  targets  for  energy  efficiency.  On  the 
other  hand,  it  is  at  risk  of  failing  to  achieve  the 
targets  for  reducing  the  risk  of  poverty  or  social 
exclusion,  the  school  drop-out  rate  (‘early  school 
leaving’),  post-secondary  educational  attainment, 
research  and  development  intensity  and  reducing 
greenhouse gas emissions. 

in 
Overall,  Luxembourg  performs  well 
achieving  the  Sustainable  Development  Goals. 
This is particularly the case for  ’Good Health and 

Executive summary 

Wellbeing’  (SDG  3).  Some  deterioration  can  be 
observed,  however,  in  indicators  related  to  the 
reduction of inequalities (SDG 10) (3). 

is 

looking 

low.  The 

for  work 

Despite  robust  job  creation,  the  proportion  of 
people  in  certain  population  groups  who  are 
working  or 
remains 
insufficient. Employment continued to increase in 
2018 and in the first three quarters of 2019 and at 
5.5%  unemployment 
youth 
unemployment rate  fell to 13.8% in the  first three 
quarters  of  2019,  while  the  rate  of  young  people 
not in employment, education or training is one of 
the  lowest  of  the  EU.  The  employment  rate  of 
older workers went up in 2018, to reach 40.5% but 
it  remains  substantially  below  the  EU  average. 
Older  and  low-skilled  workers,  especially  those 
with  a  migrant  background,  are  less  likely  to  find 
or stay in work. 

The  labour  market  remains  robust,  but  many 
firms have difficulties filling vacancies. Ensuring 
that  the  labour  supply  and  skills  match  labour 
market  needs  is  key  to  achieving  growth  that 
the  whole  of  society.  The  public 
benefits 
employment  service  continues  to  cooperate  with 
employers  to  address  the  most  critical  skills 
shortages  and  the  government  has  announced 
reforms  to  ensure  the  quality  and  relevance  of 
training. 

The  overall  risk  of  poverty  or  social  exclusion 
increased  in  2018,  reaching  the  EU  average 
(21.9%).  The  impact  of  social  benefits  in  lifting 
people  out  of  poverty  remains  strong,  but  it  has 
been weakening since 2015 and income inequality 
rose in 2018. The proportion of people in work at 
risk of poverty is still among the highest in the EU. 
In  this  context,  the  newly  implemented  Revenu 
d'inclusion sociale, an activation benefit consisting 
of  an  allowance  for  activities  organised  by  the 
social inclusion office, such as community work or 

(3)  Within the scope of its legal basis, the European Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  (SDGs)  by  monitoring  progress  and 
ensuring  closer  coordination  of  national  efforts.  The 
present report contains reinforced analysis and monitoring 
on the SDGs. A new annex (Annex E) presents a statistical 
assessment  of  trends  in  relation  to  SDGs  in  Luxembourg 
during  the  past  five  years,  based  on  Eurostat’s  EU  SDG 
indicator  set.  Measures 
labour  market 
to 
participation of under-represented groups would contribute 
to advancing towards SDGs 5 and 10. 

increase 

5 

 
 
                                                           
Executive summary 

implement  preventive  measures.  Effective 
supervision  and  guidance,  and  properly 
functioning  beneficial  ownership  registers  are 
key to mitigate risks. 

  Luxembourg’s 

is 

the  main 

financial  sector 

is  well 
integrated  in  the  international  financial 
industry’s global value chain and continues 
to  drive  economic  growth.  The  financial 
sector 
engine, 
accounting  for  25 %  of  GDP  and  11 %  of 
employment.  Luxembourg’s  banks  display 
solid capital ratios, although their profitability 
has  weakened  due  to  the  low  interest  rate 
environment  and 
rising  operational  and 
regulatory costs.  

economic 

  Households  have  high 

to 

their 

levels  of  debt 
compared 
incomes.  Rising 
household  indebtedness  stems  in  particular 
from  increasing  property  prices,  as  mortgage 
loans  account  for  most  of  household  debt. 
Increasing  debt  means 
lower 
income households may struggle to make ends 
meet  if  interest  rates  go  up  or  if  there  is  an 
economic downturn. 

that  some 

  Housing prices continue to increase, driven 
by  the  large  gap  between  demand  and 
supply.  Housing  demand  is  influenced  by 
dynamic  population  growth,  benign  financing 
conditions and a large cross-border workforce. 
are 
and 
Housing 
insufficient, largely due to a lack of incentives 
for landowners to build new housing and to an 
insufficient supply of social housing.  

investment 

supply 

to 

slow  down 

on  Luxembourg’s 

  Relatively weak investment in research and 
innovation,  especially  in  the  private  sector, 
innovation 
weighs 
potential.  This  might 
the 
development  of  activities  that  add  higher 
the  economy.  Stronger  private 
value 
investment 
technological 
innovation and digitisation can be key drivers 
of productivity growth and ease the transition 
to  a  data-driven  economy.  The  connection 
between 
science  base  and 
businesses  is  weak,  limiting  firms’  potential 
for innovation. The lack of a national research 
and innovation strategy and insufficient public 
support for business research and development 

the  public 

research, 

in 

activities favouring social stabilisation, is expected 
to help reduce poverty.   

is  below 

the  EU 
Education  performance 
average  and  closely  linked  to  socioeconomic 
status.  Luxembourg’s 
average  performance, 
worsened  between  2012  and  2018.  The  impact  of 
socio-economic  status  on  performance  is  one  of 
the  strongest  in  the  EU.  In  response  to  this 
challenge,  the  government  has  taken  measures  to 
close  the  achievement  gap  between  pupils  of 
different  backgrounds  and  to  reduce  early  school 
leaving rates. 

Key structural issues analysed in this report, which 
point  to  particular  challenges  for  Luxembourg’s 
economy, are the following:  

  Recent 

the 

regarding 

reforms  have  not  addressed 
concerns 
long-term 
sustainability of the pension and long-term 
care  systems.  Long-term  projections  for 
pensions and long-term care spending point to 
risks  to  the  sustainability  of  government 
finances. Several measures have been adopted, 
but  their  impact  has  been  limited.  More 
fundamental reforms have not been considered 
yet or are pending approval, such as the  ‘Age 
Pact’,  which  is  intended  to  keep  workers  in 
employment for longer. 

  Evidence  suggests  that  Luxembourg’s  tax 
rules  are  used  for  aggressive  tax  planning. 
Specifically, the absence of or exemption from 
withholding  taxes  on  outbound  payments  is  a 
cause  for  concern.  Reforms  in  Luxembourg 
the 
have  focused  on 
implementation  of 
agreed 
internationally 
European 
initiatives,  and  Luxembourg  reported  that  it 
plans 
issue  of  outbound 
the 
payments. 

to  address 

and 

certain 

  Despite clearly identified money laundering 
risks  linked  to  the  misuse  of  legal  entities, 
application  of  anti-money 
laundering 
professionals 
by 
measures 
providing  services  to  companies  and  trusts 
should  be  further  enhanced.  The 
low 
reporting  of  suspicious  transactions/activities 
sector’s 
by 
fragmentation  and  the  widespread  use  of 
complex  legal  structures  make  it  difficult  to 

professionals, 

such 

the 

6 

 
 
Executive summary 

investment, are just two of the challenges that 
prevent  Luxembourg  from  exploiting  the  full 
potential of its innovation eco-system. 

  Regulatory barriers remain in the business 
services sector, and some bottlenecks weigh 
on  the  business  environment.  Regulatory 
restrictions in business services remain above 
the  EU  average  for  several  economically 
important  professions.  Measures  have  been 
taken to ease restrictions in the retail sector.  

is 

  Despite  challenges  on  climate,  energy  and 
mobility, the green transition offers growth 
opportunities.  The  country 
the  EU’s 
highest  greenhouse  gas  emitter  per  capita. 
With existing  measures, it  would fall short of 
its  2030  target  for  reducing  greenhouse  gas 
emissions.  This  highlights  the  considerable 
efforts  needed  to  deliver  on  Luxembourg’s 
climate and energy objectives, in particular in 
the 
transport  and  housing  sectors.  The 
National  Energy  and  Climate  Plan  (still  to  be 
delivered  by  Luxembourg’s  authorities  at  the 
time  of  writing)will  outline  the  scope  of  the 
envisaged policy response and will play a key 
role to assess investment needs. The impact of 
the  transition  on  some  economic  sectors  and 
households  is  likely  to  require  mitigating 
policies,  the  costs  of  which  still  need  to  be 
quantified. Road traffic congestion  weighs on 
the economy and environmental sustainability, 
and  Luxembourg  is  investing  in  a  more 
sustainable  mobility.  Its  financial  sector  has 
taken  innovative  steps  in  the  sustainable 
finance  market,  while  eco-innovation  and 
circular  economy  policies  can  support  job 
the 
creation  and 
economy. 

the  diversification  of 

  A  Just  Transition  Mechanism  under  the 
next  multi-annual  financial  framework  for 
the  period  2021-2027  will  contribute  to 
ensuring  that  the  transition  towards  EU 
climate neutrality is fair by helping the most 
affected regions in Luxembourg to address the 
social  and  economic  consequences.  Key 
priorities  for  support  by  the  Just  Transition 
Fund,  set  up  as  part  of  the  Just  Transition 
in  Annex  D, 
identified 
Mechanism,  are 
building  on  the  analysis  of  the  transition 
challenges outlined in this report. 

7 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

expectations.  By  contrast,  public  investment  may 
accelerate.  On  the  fiscal  side,  the  government  has 
gathered  robust  buffers  and  has  recently  stepped 
up  financial  efforts  to  support  its  main  policy 
objectives,  as  announced  in  the  2020  budgetary 
plan,  which  would  keep  public  investment  above 
4% of GDP in the coming years (Section 3.1).  

Graph 1.1: 

Real GDP growth (y-o-y %) with contributions 
and output gap 

GDP growth 

Economic  growth  in  Luxembourg  is  set  to 
weaken, mostly due to external headwinds. Real 
GDP growth in Luxembourg is set to have reached 
2.6%  in  2019,  a  moderate  slowdown  compared 
with  the  3.1%  for  2018.  Growth  was  driven  by 
stronger  domestic  demand,  partly  offsetting  the 
weaker  contribution  from 
the  external  sector 
(Graph  1.1).  Private  consumption  picked  up  in 
2018  and  the  resulting  higher  growth  momentum 
was  maintained  in  2019,  accompanied  by  robust 
job creation. Employment growth remained above 
3½%  in  2018  and  2019.  Another  stimulus  for 
consumption  was  provided  by  expected  income 
indexation 
the  automatic  wage 
gains 
mechanism. Wage growth was 3.6% on an annual 
basis  in  2019  and  an  indexed  increase  was 
triggered  on  wages  and  pensions  in  December 
2019  and  applied  in  January  2020.  These  factors 
concurred  in  a  period  of  relatively  lower  inflation 
(1.6%  in  2019,  with  stable  prospects  for  2020, 
after  2.0%  in  2018)  to  further  support  private 
consumption growth in 2020 (4).  

from 

less  dynamic  growth 

Despite  a 
trend, 
Luxembourg’s economy is projected to continue 
outpacing  growth  in  the  EU.  Luxembourg's 
annual  real  GDP  growth  averaged  3.2%  in  the 
period 2010-2018, compared with 1.4% for the EU 
average.  The  economy  is  set  to  continue  growing 
at  a  steady  pace,  around  2½%  over  the  coming 
years  (around  1.5  percentage  points  faster  than 
growth  expected  in  the  EU).  On  the  face  of 
favourable 
business 
investment is expected to remain subdued, against 
a  backdrop  of  global  uncertainty,  regulatory  and 
profit 
technological 

and  weak 

conditions, 

financing 

changes 

(4)  It should be noted that a number of  elements discussed in 
this  report,  such  as  the  economic  developments  described 
above,  are  subject  to  a  high  degree  of  uncertainty  due  to 
data  issues.  These  issues  are  specific  to  Luxembourg  and 
related  to  weak  or  insufficient  data  coverage,  or  for 
instance,  due  to  the  relatively  frequent  and  substantial 
revisions,  in  international  comparisons,  to  Luxembourg’s 
statistics  on  GDP  and  its  components  of  the  national 
accounts and the  balance  of payments  data  (Krebs,  2019). 
These  revisions  have  a  significant  impact  on  monitoring 
and  prospective  reporting  carried  out  by  the  Commission 
services. As those statistics are used in important analyses 
such  as  evaluations  under  the  Stability  and  Growth  Pact, 
the 
and  serve 
Sustainable  Development  Goals  monitoring,  it  would  be 
beneficial for Luxembourg to improve the accuracy of first 
statistical estimates. 

to  support  policymaking, 

including 

Source: European Commission 

Graph 1.2: 

Real GDP level relative to 1995 (1995 = 0) 
and contributions (pps cumulated) 

Source: STATEC.  (European Commission calculations) 

Indicators  point  to  a  weakening  of  economic 
growth,  especially 
in  the  financial  sector, 
traditionally  Luxembourg's  economic  engine. 
Luxembourg  is  a  small  open  economy  with  a 
relatively  large  international  financial  sector.  In 
2018, real GDP was 120% higher compared to its 

8 

020406080100120959697989900010203040506070809101112131415161718Net exportsPrivate consumptionPublic consumptionGFCFInventoriesGVA Financial sector 
 
                                                           
  
 
  
level 
in  1995.  Net  exports  contributed  50 
percentage  points  to  growth  (Graph  1.2),  80%  of 
which  were  from  financial  services.  After  the 
crisis, the  contribution  from  financial services  has 
been  relatively  lower,  reflected  in  real  GDP 
growth.  Recently,  market  deepening  has  slowed 
somewhat,  although  Luxembourg  maintains  high 
productivity  gains,  accumulated  in  the  past  from 
access  to  external  markets.  While  GDP  growth 
appears rather stable in 2019, Luxembourg trading 
partners  have  been  more  affected  by  the  current 
slowdown.  Increased  uncertainty  is  weighting  on 
international 
and 
international 
integrated  production  structures  may  be  affected. 
Overall,  the  economy  is  expected  to  grow  at  a 
slower pace in the coming months. 

some 

trade 

Graph 1.3: 

Real GDP level relative to 1995  
(1995 = 0) and contributions (pps cumulated) 

Source: Eurostat 

trade 

flows  are 

Luxembourg shows high dependence to foreign 
trade,  as  it  contributes  strongly  to  economic 
trade 
activity.  Although  at  a  slower  pace, 
integration  has  expanded  further  and  the  large 
gross 
increasingly  higher, 
compared  with  the  net  exports  balance  (Graph 
1.3).  Luxembourg  displays  one  the  highest  levels 
of  market  integration  among  the  Organisation  for 
Economic Co-operation and Development (OECD) 
countries,  with  both  exports  and 
imports 
accounting  for  more than twice the  level of  GDP. 
Intermediate inputs account for the largest share of 
the  country's  trade.  National  Accounts  data  show 
that around 70% of operating costs are determined 
by intermediate inputs, more than half of which are 
imported.  High  market  integration  also  implies 
higher  exposure  to  external  shocks  to  the  supply 
chain, whereas barriers to trade have a cumulative 

1. Economic situation and outlook 

impact  on  costs  thus  on  competitiveness  (Section 
3.4.1). 

Labour market 

The labour market remains robust. Employment 
growth  peaked  at  the  beginning  of  2018  at  3.9% 
over one year. This strong pace of job creation was 
maintained  at  around  3.7%,  on  average,  in  the 
period  2018-2019  before  employment  started 
slowing  down  in  September  2019.  Even  though 
growth  was  never  close 
to  pre-crisis  rates, 
Luxembourg’s labour market has remained one of 
the  most  dynamic  among  the  EU  Member  States. 
Employment  growth 
to  continue 
decelerating  in  2020  in  line  with  the  global 
economic slowdown. 

is  expected 

Graph 1.4: 

Employment growth cumulated  
and contributions by residence (2000=0) 

Source: Eurostat 

is  highly 

Luxembourg's  economy 
labour 
intensive.  Employment  increased  by  70%  in  the 
period  2000-2018  (Graph  1.4).  At  the  same  time, 
employment growth was 17% in Belgium, 12% in 
Germany,  9.8%  in  France  and  6.8%  in  the  whole 
of  the  European  Union.  In  the  aftermath  of  the 
economic  crisis  of  2008,  employment  declined  in 
the EU for two consecutive years. In Luxembourg, 
only  cross-border  employment  fell  marginally. 
Cross-border  workers, i.e. people  who do not live 
in  Luxembourg  but  commute  there  every  day  for 
work,  account  for  41%  of  paid  employment. 
Cross-border  employment  appears  to  be  more 
sensitive  to  economic  developments  than  resident 
employment and it  has often  acted as a  buffer  for 
resident  workers  and  the  economy.  Favourable 
employment conditions have also attracted a large 

9 

-120-70-203080130-300-1500150300959697989900010203040506070809101112131415161718Private consumptionPublic consumptionGFCFInventoriesExportsImportsGDP (rhs)01020304050607000010203040506070809101112131415161718Resident employmentCross-border workersPopulationTotal employmentGDP 
 
  
1. Economic situation and outlook 

OECD estimates, accounting  for 67% of full time 
equivalent  employment.  On  a  similar  note, 
traditional  statistics  on  the  trade  of  gross  exports 
and  imports  may  be  inflated  by  re-imported 
exports  in  the  presence  of  global  value  chains, 
while  some  intragroup  accounting  practices  may 
have  a  large  impact  on  reported  foreign  direct 
investment  values.  Additional  caution  is  required 
when 
results 
interpreting  some  model-based 
computed  using  these  variables  as  inputs.  For 
instance, total factor productivity for Luxembourg, 
given the large number of non-resident workers. 

this 

Luxembourg  enjoys  a  very  high 
level  of 
productivity compared with other EU countries. 
However, productivity growth has been lagging 
behind.  In  the  period  1995-2018,  productivity  in 
Luxembourg  increased  by  0.3%  on  average  per 
year,  compared  with  1.0%  in  Belgium,  1.4%  in 
France and Germany and 1.6% for the EU average. 
positive  wage 
background, 
Against 
differentials  with  trade  partners  in  the  euro  area 
might  translate  into  competitiveness  losses  that 
cumulate  over  time,  while  the  drivers  that  had 
boosted  the  financial  sector  expansion  in  past 
decades  appear  to  be  waning  (2019  Country 
Report  for  Luxembourg,  European  Commission). 
Even  though  most  advanced  countries  have  seen 
productivity  slowing  down  as  from  the  early 
2000s,  Luxembourg’s  weaker  dynamics  do  not 
appear 
the 
increasing  share  of  services  observed  in  most  EU 
Member States (7). Moreover, Luxembourg’s trade 
openness and its financial specialisation had begun 
at an earlier stage and was already quite advanced 
in 2000. 

to  be  fully  explained  by 

likely 

Both  employment  and  GDP  tend  to  grow  at  a 
similarly  strong  pace  over  time,  which  keeps 
labour  productivity  growth  barely  changed. 
Graph  1.5  presents  a  decomposition  of  the  labour 
its 
relative 
productivity 
components  GDP  and  employment  cumulated 
changes  (the  latter  with  a  negative  sign),  for  the 
whole  economy.  As  shown  in  figure  1.5,  high 

to  1995  and 

level 

(7)  It  may  also  be  related  to  statistical  issues  (broadly 
acknowledged): the difficulty of measuring productivity in 
financial  services  is  an  important  methodological  issue  in 
the  case  of  LU,  stemming  from  a  range  of  shortcomings, 
including 
Financial 
Intermediation Services Indirectly Measured), unpriced and 
aggregated services or intermediate consumption in supply 
global value chains. 

unobserved 

indicators 

(e.g., 

number of migrant workers. As a result, population 
has  increased  by  40%  in  the  period  2000-2018, 
among  the  largest  increases  in  the  EU.  Migrant 
population  count  is  almost  at  the  same  level  as 
resident people born in Luxembourg. 

Competitiveness and investment 

Cost competitiveness conditions in Luxembourg 
appeared  stable  in  2018.  Nominal  compensation 
per  employee  grew  by  3.3%  in  2018  and  it  is 
expected  to  continue  growing  in  2019  and  2020, 
albeit  at  a  slightly  lower  pace.  In  2019  nominal 
compensation  per  employee  is  expected  to  grow 
with  3.2%,  a  faster  pace  than  the  internal  wage 
benchmark  (0.2%),  which  is  a  predicted  nominal 
compensation based on inflation, productivity and 
unemployment  (European  Commission,  2019). 
With inflation also growing, real wages have seen 
a rather moderate increase of 0.7% in 2018 and 1% 
in  2019.  Market  shares  appeared  also  relatively 
stable  in  2018.  The  role  of  domestic  and  foreign 
services is particularly important for explaining the 
aggregate 
in  Luxembourg 
(Section 3.4.1). 

competitiveness 

Measuring  and 
interpreting  Luxembourg's 
productivity is specially challenging. This is due 
to the uncertainty surrounding national statistics on 
external  trade  and  the  large  difference  between 
GDP and Gross National Income. Ratios based on 
GDP  (either  as  numerator  or  denominator)  do  not 
take account of outflows of foreign income, while 
ratios  based  on  population  do  not  account  for  the 
number  of  cross-border  workers,  which  would 
raise the population count by 30%. The OECD (5) 
has reported that other categories of the population 
live  temporarily  in  the  country  but  are  not 
registered  as  residents.  This  is  the  case,  for 
instance,  of  posted  workers (6)  (around  6%  of 
resident  population  in  2016)  or  tertiary  education 
students  (more  than  70%  of  all  tertiary  education 
students  in  Luxembourg).  Altogether,  the  number 
of  non-resident  workers  is  equivalent  to  60%  of 
Luxembourg’s  resident  population,  according  to 

(5)  OECD, International Migration, Outlook, 2019. 
(6)  Inside  the  EU/EFTA,  posted  workers  are  defined  as 
salaried or self-employed workers who generally carry out 
their  activity  in  another  member  country  while  staying 
affiliated  to  the  social  security  system  in  their  home 
country.  When  workers  are  posted  in  one  other  member 
country,  the  posting  cannot  exceed  24  months  (EC  No 
987/2009 Article 12). 

10 

 
                                                           
                                                           
1. Economic situation and outlook 

Short-term  productivity  gains  correspondingly  are 
obtained  when  GDP  grows  above  the  amount  of 
this gap on a sustained basis. 

Given the high labour intensity of the economy, 
there  may  be  potential  to  raise  productivity  in 
the  long  term  via  increasing  capital  deepening. 
Gross  fixed  capital  formation  persistently  shows 
one of the lowest records, in terms of GDP, among 
the  EU  Member  States. 
the 
contribution  of  capital  stock  to  potential  GDP 
growth  has  declined  in  recent  years  (Graph  1.6). 
Moreover, there seems to be a stronger correlation 
between  the  contributions  of  capital  accumulation 
and  total  factor  productivity  to  potential  GDP 
growth (10).  These 
suggest  untapped 
trends 
potential to raise productivity and potential growth 
through capital investment. 

this  vein, 

In 

Graph 1.6:  Contributions to potential growth - 

Luxembourg 

Source: European Commission 

Compared with the high potential of the digital 
and  technological  environment,  technological 
integration  is  low  in  the  broad  business  sector, 
while  private  investment  remains  weak.  Public 

productivity  growth  and  GDP  growth  is  high  (0.92  in  the 
period 1995-2018). 

(10)  This  would  be  consistent  with  the  economic  theory  of 
endowments,  according 
relatively  higher 
productivity  gains  would  result  from  increasing  the  share 
of  the  least  abundant  factor.  Figures  for  the  latest  years 
should  be  taken  with  care,  given  the  large  and  frequent 
revisions to Luxembourg’s national accounts.  

to  which 

(close 

to  one 

labour  intensity  is  also  concurrent  with  a  high 
elasticity  of  employment 
in 
cumulated  terms).  This  means  that  employment 
and  GDP  in  levels  tended  to  increase  at  a  similar 
pace  in  the  period  1995-2018,  which  implies  that 
labour productivity growth remained close to zero 
while 
robust 
the  economy  was  generating 
economic  growth  and  strong  job  creation  on  a 
sustained basis.  

Graph 1.5: 

Labour productivity level relative to 1995 
and contributions (percentage points) 

Source: European Commission 

in  response 

Productivity gains originating from high annual 
GDP growth rates might not be sustainable. The 
adjustment  of  employment  is  persistently  slower 
than  GDP  growth.  In  a  context  of  strong 
employment demand, firms may not swiftly adjust 
to  a  slowdown (8). 
employment 
Inversely,  employment  supply  may  not  react 
immediately  when  demand  picks  up.  Figure  1.5 
shows how employment did not react accordingly, 
during  both  recent  slowdowns  in  the  period 
2008-2009  and  2012.  There  seems  to  be  further 
evidence of some resistance in the adjustment pace 
of  employment.  As  a  result,  annual  productivity 
growth  appears  to  be  mostly  driven  by  GDP 
growth,  with  a  persistent  positive  gap  between 
annual  changes  in  GDP  and  productivity  (9). 

(8)  This  occurrence,  known  as  labour  hoarding,  refers  to  the 
practice  in  which  a  company  does  not  lay  off  employees 
when it otherwise would; in order to avoid incurring a loss 
(as during an economic slowdown), equivalent to negative 
productivity growth. 

(9)  In cumulated terms, there is a strong relationship between 
changes in employment and changes in GDP in the period 
1995-2018, with a correlation coefficient of 0.99. In annual 
terms,  by  contrast,  employment  elasticity  shows  high 
volatility and correlation between employment growth and 
GDP growth appears comparatively low (0.47 in the period 
1995-2018).  Conversely,  correlation  between  annual 

11 

-40-30-20-10010203040-120-80-4004080120959697989900010203040506070809101112131415161718Gross value added(-) Employment (hours)Labour productivity (rhs.)-1.5-0.50.51.52.53.54.5070809101112131415161718Rate of change y-o-y (%)TFP ContributionTotal Labour (Hours) ContributionCapital Accumulation ContributionPF Potential Growth 
  
                                                           
  
                                                                                   
in 

to  diversify 

the  economy.  However, 

investment  is  high,  in  support  of  knowledge-
intensive  activities.  For  years,  Luxembourg  has 
focussed on developing a few selected knowledge-
the  economy. 
intensive  clusters 
Among them, the Information and Communication 
Technology (ICT) sector has thrived and matured, 
and can play a pivotal role in improving the digital 
this 
integration 
favourable  environment  has  not  leveraged  private 
investment,  including  in  research  and  innovation 
(OECD  economic  surveys:  Luxembourg  2019, 
p.49,  Digital  Economy  and  Society  Index  2019; 
EIB Investment Survey Luxembourg 2019), which 
remains  weak  in  a  long-term  perspective,  in  line 
with  the  low  digital  integration  in  the  broad 
business  sector.  All  this  points,  in  turn,  to  an 
inability  by  firms  to  reap  productivity  gains  from 
leveraging investments on the country's digital and 
technological  environment,  despite 
its  high 
potential (Section 3.4). 

Capital markets 

in 

further 

companies 

contracted 

Luxembourg’s  foreign  direct  investment  (FDI) 
2018. 
positions 
Luxembourg's  FDI  is  concentrated  in  a  few 
financial  holding 
(SOciétés  de 
PARticipations  FInancières,  SOPARFI),  which 
channel  FDI  from  foreign  investors  to  foreign 
recipients,  representing  almost  95%  of  both  total 
FDI assets (outward investment) and FDI liabilities 
(inward 
in  Luxembourg.  Both 
liabilities and assets contracted by €343 billion and 
€315 billion,  respectively,  in  2018  (Graph  1.7). 
This  contraction  was  explained  by  divestments, 
which have been observed since the second half of 
2017.  These  operations  concerned  a  number 
SOPARFIs, which either restructured, or ceased or 
relocated their activities (BCL, 2019).  

investment) 

1. Economic situation and outlook 

Graph 1.7: 

Foreign direct investment position, gross 
components - 
Luxembourg (euro trillion) 

Source: Eurostat 

in 

in 

factors 

initiative  of 

international 

include  changes 

The  recent  FDI  trends  in  Luxembourg  mirror 
developments 
financial 
markets,  which  are  being  shaped  by  several 
factors.  FDI  is  declining  worldwide.  Possible 
explanatory 
the 
international  framework  of  the  fight  against  the 
erosion  of  the  tax  base  and  profit  transfers  (Base 
Erosion  and  Profit  Shifting 
the 
Organisation  for  Economic  Co-operation  and 
Development, OECD). Another possible factor has 
been  the  large-scale  repatriations  of  accumulated 
foreign  earnings  by  United  States  multinational 
firms,  after  the  tax  reforms  introduced  in  the 
country  at  the  end  of  2017.  United  Nations 
estimates  by  ultimate  investors  show  that  United 
States  is  by  far  the  main  source  of  inward  FDI  in 
for  almost  ¼  of 
Luxembourg,  accounting 
Luxembourg 
liabilities  (UNCTAD, 
2019). Beyond these events, lower returns on FDI, 
a  less  favourable  environment  for  investment  and 
the  underlying  changing  patterns  in  global  trade 
and  production,  where  international  investment  is 
increasingly  driven  by  intangibles,  which  are 
growing  faster  than  FDI,  contribute  the  declining 
trend of FDI. 

total  FDI 

External position 

international 

Luxembourg’s  net 
investment 
position  is  volatile,  due  to  its  role  as  an 
international 
net 
international  investment  position  reached  60%  of 
GDP  in  2018,  against  52%  of  GDP  at  the  end  of 
in  asset  prices  and  asset 
2017.  Movements 

centre.  The 

financial 

12 

01234567050607080910111213141516171819Foreign direct investment - LiabilitiesForeign direct investment - Assets 
 
  
1. Economic situation and outlook 

index  of  consumer  prices  have  increased  more 
strongly  The  current  account  "norm" (11),  as 
computed  by  the  European  Commission,  suggests 
that Luxembourg’s external position has remained 
broadly  consistent  with  fundamentals.  A  small 
positive  current  account  gap  relative  to  the  norm 
mostly  reflects  the  deviation  of  the  favourable 
fiscal  balance  outcome  in  2018  from  its  medium-
term objective.  

A  large  contribution  to  gross  value  added  is 
made by foreign corporations and non-resident 
workers.  This  inflates  the  primary  income 
deficit,  which  is  the  share  of  generated  income 
flowing  out  of  the  country. In  2018,  the  balance 
of  primary  incomes  with  rest  of  the  world 
amounted  to  (-)  €22  billion,  36%  of  GDP.  The 
primary  income  deficit  has  widened  sharply  since 
2005,  explaining  the  large  gap  between  GDP  and 
gross national income (Graph 1.9). 

Graph 1.9:  Difference between GDP and GNI (euro billion) 

relocations,  as  well  as  inflows  of  international 
liquidity  explain  the  volatility  and  the  relative 
increase  in  gross  assets  and  liabilities  positions  in 
previous years (see Section 3.2).  

Graph 1.8:  Current account, gross components - 

Luxembourg. 

Source: Luxembourg 

current 

balance 

account 

The 
reflects 
Luxembourg's  economy  features  of  output 
concentration,  trade  and  financial  integration 
and  cross-border  labour  intensity.  The  current 
account balance has been posting comfortable and 
stable surpluses, of around 5% of GDP, for several 
years  (Graph  1.8).  The  surplus  in  services  (about 
40% of GDP) is mainly related to private banking, 
the  investment  fund  industry  and  corporate  cash 
management  entities.  Most  of  these  financial 
institutions are part of large international financial 
groups  and  multinational  corporations,  which 
mainly  operate  cross-border. The  stable  surplus  is 
driven  by  strong  net  financial  services  exports, 
counterbalanced, to a large extent, by the outflows 
registered  in  the  primary  income  balance.  This 
reflects 
defining 
Luxembourg's  economy:  high  value  added  sector 
concentration,  high  external  trade  integration  and 
high (foreign) labour intensity. 

dependency 

threefold 

a 

Real  effective  exchange  rates  have  appreciated 
somewhat over the past years compared to their 
long-term  trend.  Real  effective  exchange  rates 
based on the harmonised index of consumer prices 
and the unit labour costs index have appreciated by 
a moderate trend. The recent appreciation based on 
line  with 
unit 
developments in neighbouring countries, while real 
effective  exchange  rates  based  on  the  harmonised 

remains 

labour 

costs 

in 

Source: Eurostat 

(11)  Current  account  norm  denotes 

the  current  account 
explained  by 
to  European 
fundamentals  according 
Commission  model  based  on  European  Commission 2019 
autumn  forecast.  ‘Current  account  stabilising  the  net 
international  investment  position  above  -35%  by  2038‘  is 
the  average  current  account  balance  as  %  of  GDP  that 
would  allow  the  net  international  investment  position  to 
stabilize  at  is  current  level  (for  countries  with  an  net 
international investment position above  -35% of GDP), or 
reach -35% of GDP in the next 20 years. Required current 
account denotes the average current account as % of GDP 
needed  to  attain  the  higher  of  two  net  international 
investment position targets within ten years: i) reaching the 
prudential  net  international  investment  position  threshold, 
or  ii)  halving  the  gap  to  the  fundamental  net  international 
'EU  Monitor  of 
investment  position  benchmark  (see 
Macroeoconomic 
European 
Commission). 

Imbalances 

2019', 

13 

-40-30-20-1001020304050         06         07         08         09         10         11         12         13         14         15         16         17         18         19Goods and ServicesCompensation of employeesInvestment incomeSecondary incomeCurrent account balance%of GDP0510152025959697989900010203040506070809101112131415161718Property income (net)Compensation of employees (Net)Diff. GDP (-) GNI 
  
  
                                                           
 
1. Economic situation and outlook 

affordability  deteriorating,  in  particular  for  low-
income  households.  This  can  be  explained  by 
insufficient  land  availability,  high  population  and 
employment  growth,  a  large  number  of  cross-
transport 
border  workers  with 
conditions  (Section  3.5).  There 
is  a  broad 
consensus  that  the  shortage  of  affordable  housing 
presents  a  structural  challenge  in  the  economy 
(Section 3.1).  

challenging 

Social developments 

Poverty  and  inequality  are  increasing  despite 
the  positive  impact  of  social  transfers.  In  2018, 
Luxembourg registered one of highest increases in 
income  inequality  in  the  EU,  with  the  S80/S20 
income  quintile  share  ratio  going  up  from  5.00  in 
2017  to  5.72  in  2018 (12).  The  overall  risk  of 
poverty or social exclusion has increased to 21.9 % 
in 2018, reaching the EU average. In-work poverty 
is  still  among  highest  in  the  EU.  Although  social 
transfers play a pivotal role in lifting people out of 
poverty, their impact has weakened further, against 
the  rise  of  market  income  inequality.  The  newly 
implemented  Revenu  d’inclusion  sociale,  an 
activation 
the  minimum 
guaranteed  revenue  as  of  2019,  which  consists  of 
an allowance for activities organised by the  social 
inclusion  office  (such  as  community  work  or 
activities 
is 
expected  to  foster  social  inclusion  (See  section 
3.3). The gross minimum wage has been raised in 
2019 (in addition to regular indexation). 

stabilisation), 

favouring 

replacing 

benefit 

social 

of 

latest 

  results  of 

origin 
on 

and 
students’ 
The 
impact 
socioeconomic 
their 
background 
performance  is  one  of  the  strongest  in  the  EU. 
the  Programme  for 
The 
International  Student  Assessment  (PISA)  led  by 
the  Organisation  for  Economic  Co-operation  and 
(OECD) (13), 
Development 
in 
the  proportion  of  15  year-old 
Luxembourg, 
students  with  a  low  socio-economic  background 
who  underperform  in  reading  is  37.5  percentage 
points  greater  than  that  of  15  year-old  students 

show 

that 

Private debt 

Non-financial  corporations’  debt  is  one  of  the 
highest  in  the  EU.  At  around  242%  of  GDP  in 
2018,  it  is  expected  to  fall  to  223%  of  GDP  in 
2019,  of  which  more  than  80%  is  foreign  owned 
intragroup lending, although it remains well below 
pre-crisis  levels.  Within  the  current  low  interest 
rate environment, domestic banks have maintained 
their  profitability  mostly  by  increasing  lending. 
Most  of  this  expansion  is  linked  to  cross-border 
intercompany  debt  (Graph  1.10).  A  significant 
active  deleveraging  took  place  in  2017  and  2018, 
which  was  partly  linked  to  holding  companies' 
exceptional 
de 
PARticipations  FInancières,  SOPARFI.  See 
capital markets above). 

operations 

(SOciétés 

Mortgage debt has been increasing in line with 
rising house prices. A higher debt service burden, 
for  a  larger  share  of  households,  has  built  up 
compared with other EU Member States. However, 
regular  internal  stress  tests  suggest  sound  macro-
prudential 
risk 
contention (see Section 3.2). 

oversight 

effective 

and 

Graph 1.10:  OUTSTANDING LOANS TO THE NON-FINANCIAL 

PRIVATE SECTOR (YoY %) 

Source: Banque Centrale Luxermbourg 

Housing 

Soaring  housing  prices  amplify  inequalities, 
indebtedness  and  may 
increase  household 
undermine 
attractiveness. 
Housing  prices  have  been  growing  strongly,  with 

Luxembourg's 

(12)  The years refer to the EU SILC survey year and correspond 

to income data of the previous year. 

(13)  The  Programme  for  International  Student  Assessment 
(PISA) led by the Organisation for Economic Co-operation 
and  Development  measures  15-year-olds’  ability  to  use 
their  reading,  mathematics  and  science  knowledge  and 
skills to meet real-life challenges. Since 2019 Luxembourg 
will carry the PISA survey every two years. 

14 

-6-30369121518JanAprJulOctJanAprJulOctJanAprJulOctJanAprJulOctJan20162017201820192020NFC - ForeignHHs- ForeignNFC - DomesticHHs - DomesticNFPS 
  
                                                           
1. Economic situation and outlook 

indicators  (see  Annex  E),  Luxembourg  has  been 
making progress in a majority of the goals over the 
past  5  years.  This  is  particularly  the  case,  on 
indicators  on  good  health  and 
average,  for 
wellbeing (SDG 3 – where Luxembourg registers a 
better performance than the EU average regarding 
most  indicators),  affordable  and  clean  energy 
(SDG 7) and gender equality (SDG 5). There  is a 
more mixed picture on indicators related to quality 
of education (SDG 4) and responsible consumption 
and  production,  in  particular  on  waste  generation 
and  management  (SDG  12).  Some  deterioration 
can  be  observed  in  indicators  related  to  the 
reduction  of  inequalities  within  countries  (SDG 
10),  the  risk  of  poverty  (SDG  1),  or  industry, 
innovation  and 
infrastructure  (SDG  9).  The 
indicators  related  to  the  mitigation  of  climate 
change (SDG 13) are improving but remain below 
the EU average. 

with  a  high  socio-economic  background  (see 
Section 3.3). 

Public sector 

The  budgetary  surplus  is  expected  to  shrink  in 
the next years. From a surplus of 2.7% of GDP in 
2018,  to  2.3%  of  GDP  in  2019,  it  is  expected  to 
drop  further  to  1.4%  of  GDP  in  both  2020  and 
2021 (14). The surplus in 2018 was again, to a large 
extent,  the  result  of  a  large  increase  in  revenues 
from  current  taxes  on  income  and  wealth.  In 
corporations 
particular, 
increased for the third year in a row by more than 
10% year-on-year. A moderate evolution of public 
expenditure also contributed to the improvement. 

revenues 

from 

tax 

Revenues are projected to be less buoyant in the 
short-term  forecasts.  After  overperforming  for 
several years, revenues are expected to increase in 
line  with  GDP  growth  in  the  next  few  years.  The 
introduction  of  the  electronic  tax  declaration  in 
2017  accelerated  the  collection  of  revenues  for 
corporations (15).  An  increase  in  expenditure,  in 
particular social outlays, will contribute to the fall 
in the surplus. 

The level of public debt is low. It stood at 21% of 
GDP in 2018 and it is projected to fall even lower 
by  2021.  A  commitment  to  maintain  the  debt 
below  the  30%  of  GDP  threshold  has  been 
confirmed by the new government that took office 
at the end of 2018.  

Concerns  remain  regarding  the 
long-term 
sustainability  of  public  finance.  From  now  until 
2070,  Luxembourg  is  expected  to  face  one  of  the 
sharpest  increases  among  the  EU  countries  in 
ageing-related  expenditure  (pensions,  long-term 
care, and healthcare costs). With no policy change, 
there  would  be  a  large  impact  on  public  debt. 
Several measures have been adopted to address the 
sustainability  of  public  pensions,  but  their  impact 
has been limited (Section 3.1). 

Overall,  Luxembourg  performs  well  in  its 
progress  towards  the  Sustainable  Development 
Goals  (SDGs).  According  to  Eurostat’s  SDGs 

(14)  European Commission 2019 autumn forecast. 
(15)  Law  7020/2017.  The  reform  amongst  else  reduced  the 
statutory  corporate  income  tax  rate  from  21%  to  19%  in 
2017  and  then  to  18%  in  2018,  increased  tax  credits  for 
investment. 

15 

 
                                                           
 
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators 

Source: Eurostat, ECB and European Commission 

16 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)5.10.24.21.83.12.72.72.6Potential growth (y-o-y)4.12.22.52.42.02.52.72.7Private consumption (y-o-y)1.51.62.82.23.3...Public consumption (y-o-y)3.02.12.14.74.1...Gross fixed capital formation (y-o-y)5.14.11.75.6-5.9...Exports of goods and services (y-o-y)9.31.97.10.70.5...Imports of goods and services (y-o-y) 9.13.17.20.6-0.3...Contribution to GDP growth:Domestic demand (y-o-y)2.01.61.62.40.5...Inventories (y-o-y)0.2-0.20.4-1.10.9...Net exports (y-o-y)2.9-1.22.20.41.6...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)1.91.41.72.11.92.22.12.0Capital accumulation (y-o-y)1.11.21.21.10.80.90.90.9Total factor productivity (y-o-y)1.1-0.4-0.4-0.8-0.8-0.5-0.3-0.1Output gap0.5-3.6-1.90.31.51.51.41.2Unemployment rate4.64.96.25.65.55.35.35.3GDP deflator (y-o-y)3.93.21.31.72.52.21.92.0Harmonised index of consumer prices (HICP, y-o-y)3.22.70.62.12.01.61.71.9Nominal compensation per employee (y-o-y)4.02.02.13.03.33.22.52.3Labour productivity (real, person employed, y-o-y)1.7-2.31.7-1.6-0.6...Unit labour costs (ULC, whole economy, y-o-y)2.34.40.44.63.94.33.32.8Real unit labour costs (y-o-y)-1.51.1-0.92.81.32.11.40.8Real effective exchange rate (ULC, y-o-y)1.22.1-0.44.32.91.41.11.0Real effective exchange rate (HICP, y-o-y)1.10.10.01.11.6-0.5-0.40.1Net savings rate of households (net saving as percentage of net disposable income)10.813.314.616.016.0...Private credit flow, consolidated (% of GDP)40.95.317.627.4-0.5...Private sector debt, consolidated (% of GDP)220.3301.4320.8322.9306.5...of which household debt, consolidated (% of GDP)46.757.761.164.565.0...of which non-financial corporate debt, consolidated (% of GDP)173.6243.7259.7258.5241.6...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)...0.60.7...Corporations, net lending (+) or net borrowing (-) (% of GDP)2.1-4.0-4.4-6.4-7.2-2.6-1.8-1.9Corporations, gross operating surplus (% of GDP)28.228.129.629.729.028.427.827.5Households, net lending (+) or net borrowing (-) (% of GDP)2.63.53.13.53.93.94.04.0Deflated house price index (y-o-y)8.11.35.93.74.8...Residential investment (% of GDP)3.23.43.93.63.8...Current account balance (% of GDP), balance of payments10.66.65.14.94.84.44.44.4Trade balance (% of GDP), balance of payments26.429.635.236.437.0...Terms of trade of goods and services (y-o-y)0.10.80.1-0.70.2-0.1-0.10.0Capital account balance (% of GDP)0.0-0.7-0.8-0.41.4...Net international investment position (% of GDP)10.210.955.751.859.8...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-2167.1-1786.4-3363.0-3875.6-3523.8...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)7892.37807.59860.410749.710178.5...Export performance vs. advanced countries (% change over 5 years)28.913.925.518.08.5...Export market share, goods and services (y-o-y)4.7-1.16.0-3.90.70.5-1.3-1.2Net FDI flows (% of GDP)39.3-32.2-16.5251.529.2...General government balance (% of GDP)1.20.61.41.42.72.31.41.4Structural budget balance (% of GDP)..2.21.22.01.60.80.9General government gross debt (% of GDP)7.618.222.122.321.019.619.218.6Tax-to-GDP ratio (%) (3)38.039.038.839.140.741.741.541.7Tax rate for a single person earning the average wage (%) (4)26.327.430.329.029.6...Tax rate for a single person earning 50% of the average wage (%) (4)15.716.017.715.916.2...(1) NIIP excluding direct investment and portfolio equity sharesKey economic and financial indicators - Luxembourgforecast(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-controlled branches.(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the section on taxation 
 
 
 
  
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

of 

all 

28% 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  Luxembourg 
have  recorded  at  least  ‘some  progress” (16). 
Looking  at  the  multi-annual  assessment  of  the 
implementation 
country-specific 
recommendations  (CSRs)  since  these  were  first 
country-specific 
all 
adopted,  61%  of 
recommendations  addressed  to  Luxembourg  have 
recorded 'limited' or 'no progress' (see Figure 2.1). 
Substantial progress and full  implementation  have 
been achieved in several areas of the fiscal policy, 
for instance preserving a sound fiscal position and 
strengthening fiscal governance. 

the 

the 

Graph 2.1: 

Luxembourg - Level of implementation today 
of 2011-2019 CSRs 

* The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact 
** 2011 annual assessment: Different CSR assessment 
categories 
** The multiannual CSR assessment looks at the 
implementation until 2020 Country Report since the CSRs 
were first adopted. 

Source: European Commission 

its 

strengthened 

the  past  years,  Luxembourg  has 
Over 
significantly 
budgetary 
framework.  In  2014,  Luxembourg  transposed  in 
national  legislation  the  requirements  of  the  2011 
Council  Directive  on  budgetary  frameworks  and 
the fiscal compact. In 2017, the authorities further 
adjusted  the  domestic  regulation  to  bring  it  into 
full  compliance  with  the  2011  Council  Directive 

(16)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular section 2 

Since 

budgetary 

on 
then, 
frameworks. 
Luxembourg,  which  is  under  the  preventive  arm, 
has  remained  committed  and  compliant  with  the 
provisions  of  the  Stability  and  Growth  Pact.  The 
implementation of the savings measures identified 
by  the  2014  spending  review  is  largely  on  track. 
The national authorities have implemented 80% of 
the measures identified in the review, most of them 
spending cuts integrated in the domestic budgetary 
planning.  After  overachieving  savings  target  in 
2015  (the  first  year  of  the  multi-year  budgetary 
strategy),  the  targeted  savings  for  the  2016-2018 
period were revised downwards by 25-35 %, partly 
linked to the reconsideration of a number of reform 
steps in vocational education and social transfers. 

and 

activation 

Several measures have been adopted to address 
the  long-term  sustainability  of  public  pensions, 
though their impact has been limited. A pension 
reform  was  adopted  in  2012,  but  its  impact  on 
pension  expenditure  has  been  limited.  A  law 
aiming at keeping workers with disabilities longer 
in  the  labour  market  entered  into  effect  at  the 
beginning  of  2016.  In  2017,  some  new  measures 
have  been  put  in  place  for  older  jobseekers 
(specific  ALMPs  since  2016,  measures  to  fight 
long-term  unemployment  since  2017  and  in  the 
ADEM,  specific  mandatory  information  sessions 
training  measures). 
about 
Additionally, the 2017 tax reform introduced some 
incentives  for  increasing  working  time.  A  reform 
of the long-term care public insurance was enacted 
at  the  beginning  of  2018,  which  keeps  the 
evolution of long-term care costs in  line  with that 
of  the  share  of  dependent  people  in  the  total 
population,  which  is  expected  to  ensure  financial 
viability  until  2030.  Meanwhile,  the  expenditure 
projections  reveal  a  heightened  requirement  for 
long-term 
future. 
spending 
Additionally,  the  ‘pré-retraite  de  solidarité’,  a 
special  scheme  allowing  people  to  retire  from  the 
age  of  57,  was  abrogated  in  2018  but  its  impact 
might  not  be  significant,  as  some  restrictions  on 
other kinds of early retirement were loosened. The 
employment  rate  of  older  workers  went  up  by 
7.5%  in  2018  but  it  remains  substantially  below 
the  EU  average.  More  fundamental  reforms  have 
not  been  considered  yet  or  are  pending  approval, 
such  as  the  so-called  'Age  Pact',  which  includes  a 
whole package of measures to keep senior workers 
longer  in  employment.  Finally,  no  measures  have 
been taken on the recommendation for aligning the 

care 

the 

in 

17 

No Progress11%Limited Progress61%Some Progress25%Substantial Progress3%Full Implementation0% 
 
  
 
                                                           
2. Progress with country-specific recommendations 

innovation and digital transformation in the broad 
business  sector.  Public  investment  remains  high 
and  measures  to  foster  innovation  have  been 
integrated in the “Data-Driven Innovation Strategy 
for the Development of a Trusted and Sustainable 
Economy”,  as  well  as  a  strategy  on  artificial 
intelligence.  Their  success  will  depend,  to  a  large 
to  activate  private 
extent,  on 
investment,  especially  on  innovative  technologies 
and  digital 
investment 
integration.  Business 
remains low compared with the euro area average, 
which  weighs  on  Luxembourg’s 
innovation 
potential and might slow down the development of 
high-added value activities.  

their  capacity 

to 

overall 

the  EU  weighted  average 

recommendations,  although 

Luxembourg  has  made 
limited 
progress (17)  in  addressing  the  2019  country-
specific 
some 
progress  was  achieved  on  policies  related  to 
investment  in  a  number  of  areas.  In  addition  to 
limited  progress  on  employment  of  older  workers 
as  outlined  above,  progress  has  been  limited  in 
removing  regulatory  restrictions  in  the  business 
services sector. Several measures have been taken, 
although  some  regulatory  restrictions  remain 
above 
in  several 
regulated professional business services (according 
to  available  indicators).  Luxembourg  engaged  in 
further  reforming  the  professions  of  architect  and 
engineer.  No  progress  has  been  made  by 
Luxembourg 
long-term 
improve 
sustainability  of  the  pension  system,  including  by 
further limiting early retirement.  Limited progress 
was 
tax 
recorded  on  addressing  aggressive 
planning  –  aside  from  implementing  EU  and 
internationally agreed initiatives,  Luxembourg has 
not  yet  announced  concrete  reforms.  However, 
Luxembourg  reported  that  it  has  plans  to  address 
the  issue  of  outbound  payments  with  regard  to 
jurisdictions  included  in  the  EU  list  of  non-
cooperative jurisdictions for tax purposes. Limited 
progress was made on economic policies related to 
investment  increasing  housing  supply,  including 
by  increasing  incentives  and  lifting  barriers  to 
build.  By  contrast,  some  progress  was  made  on 
investment  on 
related 
economic  policies 
improving 
transport.  Significant 
investments  have  been  realised  and  are  to  be 

sustainable 

the 

to 

statutory  retirement  age 
expectancy. 

to  changes 

in 

life 

in 

has 

the 

been 

substantial. 

Some  progress  has  been  made  on  enhancing 
participation 
labour  market,  but 
challenges  remain.  The  main  efforts  have 
focussed on reducing youth unemployment, where 
The 
progress 
recommendation  on  skills  development  has  been 
recently  addressed:  the  vocational  education  and 
training  system  had  identified  several  fields  for 
improvement. Students with lower socio-economic 
status  are  the  most  likely  to  fall  behind  in  all 
subjects  and  to  be  oriented  towards  the  technical 
tracks  of  secondary  school.  In  response,  the 
government recently took a number of measures to 
close  the  achievement  gaps  among  pupils  of 
different  backgrounds  and  to  reduce  early  school 
leaving.  The  law  on  vocational  education  and 
training, amended in 2016 and in application since 
2016/2017, aims at improving the qualitative  skill 
sets  and  study  success  rates  of  students.  The 
employment  of  older  workers  remains  among  the 
lowest  in  the  EU,  particularly  for  the  low-skilled, 
who  are  also  particularly  affected  by  long-term 
unemployment.  

Luxembourg  has  made  some  progress 
in 
addressing  bottlenecks  that  hamper  housing 
investment.  Numerous  measures  have  been 
adopted  or  are  planned,  especially  on  the  supply 
side,  trying  to  increase  the  market  offer.  The 
"Fonds de Logement", a land management agency, 
was  empowered  by  law  to  support  the  supply  of 
housing.  While  significant  investment  appears 
necessary  to  alleviate  tensions  in  the  housing 
market,  measures  to  stimulate  housing  supply  are 
under  preparation.  These  include  more  initiative 
planning  regulations,  development  of  affordable 
the 
and  social  housing, 
government 
tax 
to  municipalities. 
incentives 
Nevertheless,  supply  remains  limited  and  the 
challenge  ahead  for  Luxembourg’s  authorities 
continues  to  be  sizeable.  House  prices  have 
continued  rising  in  2018  and  in  the  first  half  of 
2019. 

land  purchase  by 
renting,  stronger 

for  social 
and 

support 

Recently,  Luxembourg  has  made  some  further 
progress  towards  the  diversification  of  the 
economy.  In  response 
to  somewhat  weaker 
developments  recently,  two  wide-scope  strategies 
technological 
to 
have  been  prepared 

foster 

(17)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview Table in the Annex. This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

18 

 
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Overall assessment of progress with 2019 CSRs - Luxembourg 

For CSR 3: The regulatory framework underpinning the programming of the 2021-2027 EU cohesion policy funds has not yet 
been adopted by the co-legislators, pending inter alia an agreement on the multiannual financial framework (MFF). 

continued to  improve the transport system, and in 
particular public transport. Some progress was also 
made  on  economic  policies  related  to  investment 
on  fostering  digitalisation  and  innovation  and  on 
stimulating skills development. 

19 

  Luxembourg Overall assessment of progress with 2019 CSRs:  Limited CSR 1:  Increase the employment rate of older workers by enhancing their employment opportunities and employability. Improve the long-term sustainability of the pension system, including by further limiting early retirement. Luxembourg has made Limited Progress in addressing CSR 1(1)  Limited Progress has been made in increasing the employment rate of older workers by enhancing their employment opportunities and employability.  No Progress has been made in improving the long-term sustainability of the pension system, including by further limiting early retirement. CSR 2: Reduce barriers to competition in regulated professional business services. Luxembourg has made Limited Progress in addressing CSR 2    Limited Progress. Restrictions remain above the EU average in most regulated professions. However, an assessment on deregulation approaches to regulated professions was announced. CSR 3: Focus economic policy related to investment on fostering digitalisation and innovation, stimulating skills development, improving sustainable transport, and increasing housing supply, including by increasing incentives and lifting barriers to build. Luxembourg has made Some Progress in addressing CSR 3   Some Progress was made on economic policy related to investment on fostering digitalisation.  Some Progress was made on economic policy related to investment on fostering and innovation.  Some Progress was made on economic policy related to investment on stimulating skills development,  Some Progress was made on economic policy related to investment on improving sustainable transport.  Limited Progress was made on economic policy related to investment on increasing housing supply, including by increasing incentives and lifting barriers to build. CSR4: Address features of the tax system that may facilitate aggressive tax planning, in particular by means of outbound payments. Luxembourg has made limited progress in addressing CSR4   Limited Progress was made in addressing features of the tax system that may facilitate aggressive tax planning, in particular by means of outbound payments   
 
 
 
 
 
 
 
 
 
 
 
  
 
2. Progress with country-specific recommendations 

Box 2.1: EU Funds and Programmes to address structural challenges and to foster growth 
and competitiveness in Luxembourg 

Luxembourg benefits from EU support. The financial allocation from the EU Cohesion policy funds (1) 
for Luxembourg amounts to €88.2 million in the current Multiannual Financial Framework. By the end of 
2019,  some  €92.7  million  (more  than  the  total  amount  planned)  was  allocated  to  specific  projects,  while 
€41.4  million  was  reported  as  spent  by  the  selected  projects (2),  showing  a  level  of  implementation  well 
above the EU average. 

EU  Cohesion  policy  funding  is  contributing  to  transform  Luxembourg’s  economy  by  promoting 
growth  and  employment  via  investments.  Policy  areas  include,  among  others,  research,  technological 
development and innovation, renewables and energy efficiency, employment and labour mobility. By 2019, 
investments  driven  by  EU  Funds  have  already  led  to  22  researchers  working  in  improved  Research  and 
Development infrastructure facilities, 12 firms cooperating with research institutions and 2,161 households 
with  improved  energy  consumption  classification.  By  the  end  of  2018,  the  European  Social  Fund  had 
supported  1,405  disadvantaged  participants  with  a  view  to  improving  their  social  inclusion  and  2,999 
inactive young people in order to promote their sustainable vocational integration. 

For  instance,  the  European  Regional  Development  Fund  co-financed  the  Computational  and  Data 
Engineering  Hub,  which  will  be  a  springboard  providing  Luxembourg  with  a  sustainable  competitive 
advantage  and  will  contribute  to  the  training  of  the  next  generation  researchers  and  industrialists  in 
Computational  and  Data  Science.  The  Interreg  Energy  Cells  Greater  Region  project  encompasses  four 
energy cells in each Member State of the Grande Région forming a virtual power plant balancing renewable 
electricity  production  and  consumption  by  using  storage  capacity  within  the  cell  or  by  exchanging  excess 
power with other interconnected cells via smart grids. The European Social Fund supports many projects 
in the field of digital education, training and upskilling at various levels. For instance, Digit4All: to promote 
digital  inclusion;  Fit4DigitalFuture:  for  young  jobseekers  aged  18-30  having  completed  secondary 
education; Fit4CodingJobs: aiming at training 60 web developers within two years and; Formation e-Presse: 
training autistic people in the field of digital newspapers and social media. 

Agricultural funds and other EU programmes also contribute to addressing the investment needs. The 
European  Agricultural  Fund  for  Rural  Development  allocates  €368  million  (including  national  co-
financing). Luxembourg also benefits from other EU programmes, such as the Connecting Europe Facility, 
which allocated €29 million to  specific projects on strategic transport networks, and Horizon 2020, which 
allocated  EU  funding  of  €125  million  (including  39  small  and  medium-sized  enterprises  with  about  €24 
million). 

EU  funds  already  invest  on  actions  in  line  with  the  Sustainable  Development  Goals  (SDGs).  In 
Luxembourg European Structural and Investment Funds support 8 out of the 17 SDGs and up to 98% of the 
spending is contributing to those goals.  

(1)  European Regional Development Fund (ERDF) and European Social Fund (ESF). 
(2)  https://cohesiondata.ec.europa.eu/countries/LU  

Upon  request  from  a  Member  State,  the 
Commission  can  provide  tailor-made  expertise 
via the Structural Reform Support Programme 
to  help  design  and 
implement  growth-
enhancing reforms. Since 2018, such support has 
been provided to Luxembourg for three projects. In 
2019, several projects have been progressing well. 
The  Commission  has  provided,  for  example,  the 
authorities  with  support  in  the  area  of  digital 
economy.   This   involves  developing  a  strategic 

roadmap  and  a  digital  infrastructure  map  for  5G 
rollout  and  exchange  of  good  practices,  through 
the  elaboration  of  an  upskilling  and  awareness-
raising  plan.  Likewise,  a  study  has  been  launched 
to  assess  the  feasibility  of  a  reform  of  the 
accounting 
budgetary 
central 
system 
government 
level.  This  study  also  aims  at 
introducing  international  good  practices  for  the 
transition to accrual accounting. 

at 

20 

 
 
 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  LONG TERM SUSTAINABILITY 

is 

to 

low 

Luxembourg 
fiscal 
exposed 
sustainability  risks  on  the  short  to  medium 
term.  The  debt  sustainability  analysis,  as  well  as 
the  S0  and  the  S1  indicators (18),  in  the  Fiscal 
Sustainability 
(European 
Commission,  2020)  point  to  low  risks,  due  to  the 
low public debt (19.6 % of GDP at end 2019) and 
the favourable initial budgetary position.  

Report 

2019 

However,  risk  indicators  point  to  high  long-
term  fiscal  sustainability  risks.  Ageing-related 
costs  are  expected  to  rise  up  until  2070,  as 
highlighted  by  a  high  S2 (19)  long-term  fiscal 
sustainability  gap  indicator  of  8.6  percentage 
points  of  GDP  in  2019  (Debt  Sustainability 
Monitor  2019,  European  Commission  2020),  up 
from 8.1 percentage points in 2018. The projected 
rise  of  age-related  expenditure  is  the  main  driver 
behind  this  indicator,  in  particular  pensions  (6.1 
percentage  points  of  GDP)  and  health  care  and 
long-term care expenditure (3 percentage points of 
GDP). 

3.1.2.  PENSION, HEALTHCARE AND LONG-TERM 

CARE 

in 

the 

long 

Despite  a  favourable  position  in  the  short  to 
medium term, the pension system is expected to 
face  rising  challenges 
term. 
Luxembourg's population ageing is slower than in 
neighbouring  countries  due  to  the  continuous 
inflow  of  foreign  workers  (both  immigrants  and 
cross-border  commuters).  This  supports  pension 
contributions  while  only  modestly  raising  the 
average  workforce age, leading  to pension  system 
accumulated reserves of €19 billion in 2018. Long-
term  concerns  are  linked  to  expectations  of  rising 
age-related expenditure due to the evolution of the 
the  government-
age  pyramid.  According 

to 

appointed  pension  working  group,  the  operational 
deficit  of  the  general  private  sector  pension 
scheme  is  projected  to  reach  7.6 %  of  GDP  by 
2070. Accumulated reserves are expected to ensure 
the viability of the system  until 2041 (Rapport du 
groupe de travail pensions, 2018). The contribution 
rate  is  currently  24  %  of  the  wage  mass,  with 
employers,  employees  and 
state  each 
contributing  one  third.  However,  based  on  the 
latest simulations, the contribution rate would need 
to  increase  to  37  %  to  prevent  the  reserve  of  the 
general  pension  scheme  from  falling  below  the 
legal  threshold  of  1.5  times  the  annual  pension 
expenditure by 2070 (Rapport du groupe de travail 
pensions, 2018). The next evaluation of the general 
pension scheme is expected to be issued in 2022. 

the 

Projected  increases  in  health  care  expenditure 
threaten  the  long-term  sustainability  of  the 
system.  Luxembourg’s  per  capita  spending  on 
health care remains the highest in the EU, as total 
per capita expenditure accounted for 172 % of the 
EU  average  in  2016.  However,  total  expenditure 
on  health  accounted  for  5.5 %  of  GDP  in  2016, 
below  the  EU  average  (9.9 %).  According  to  the 
Ageing  Report  2018,  public  health  expenditure  in 
Luxembourg  is  projected  to  increase  by  1.2 
percentage  points 
(Ageing  Working  Group 
Reference Scenario) by 2070. Although the Caisse 
Nationale  de  Santé  (the  national  health  insurer  in 
Luxembourg)  has  accumulated  financial  reserves 
amounting 
insurance 
to  27  %  of  its  health 
expenditure  in  2017  (IGSS,  2019),  the  projected 
increase  in  spending  poses  a  risk  to  future  fiscal 
sustainability.  The  country’s  relatively  favourable 
composition in terms of population age is likely to 
change in the future. Luxembourg’s broad benefits 
package, with one of the lowest cost-sharing in the 
EU,  as  well  as  other  features  such  as  hospital 
overcapacity,  with  relatively  low  bed  occupancy 
rates and high length of stay, and a relatively low 
share  of  generics,  suggest  efficiency-enhancing 
policies could help mitigate long-term risks.  

(18)  S0  is  an  early-detection  indicator  of  fiscal  stress  in  the 
upcoming  year,  based  on  25  fiscal  and  financial-
competitiveness  variables.  The  S1  indicator  measures  the 
fiscal adjustment required to bring the debt-to-GDP ratio to 
60 % by 2034. See Annex B for more information.  

(19)  The S2 indicator measures the upfront and permanent fiscal 
adjustment required to stabilise the debt-to-GDP ratio over 
the infinite horizon, including the cost of ageing. 

Long-term  care  expenditure  is  projected  to 
increase,  posing  fiscal  sustainability  risks.  The 
"Ageing  Working  Group 
reference  scenario" 
forecasts  public  expenditure  on  long-term  care  to 
grow from 1.3 % of GDP in 2016 to 4.1 % of GDP 
in  2070.  This  considerable  increase  is  well  above 

21 

 
 
                                                           
3.1. Public finances and taxation 

labour  taxation,  which  is  lower  than  the  EU 
average  (around  49%).  However,  disincentives  to 
work  for  second  earners  are among  the  highest  in 
taxation. 
the  EU,  which  owes 
Luxembourg  is  among  the  few  countries  where 
household-based  taxation  still  applies,  although 
there  are  plans  to  generalise  individual  taxation, 
which  is  currently  optional.  The  exact  conditions 
of  the  reform  still  need  to  be  defined  (Section 
3.3.1). 

in  part 

to 

While  the  statutory  corporate  income  tax  rate 
remains  above  the  EU  average,  the  tax  burden 
effectively  borne  by  a  company  is  not  only 
impacted by the rate, but also by tax incentives. 
The  statutory  corporate  income  tax  (CIT)  rate 
decreased in recent years, to 24.9 % in 2020 (17 % 
excluding  surcharges),  above  the  EU  average  of 
21.7 %.  The  rate  at  which  corporate  income  was, 
on average, effectively taxed amounted to 8.5 % in 
2017  (European  Commission  (2019),  Taxation 
Trends  Report,  implicit  tax  rate  on  corporate 
income).  Corporations  with taxable income below 
€  175.000  benefit  from  a  22.8  %  statutory 
(15%  excluding 
corporate 
surcharges).  

income 

rate 

tax 

from 

Recurrent taxes are low and based on outdated 
recurrent 
property  values.  Revenues 
property taxes on immovable property were among 
the lowest in the EU in 2017. This owes mainly to 
the definition of the tax base, which is based on a 
scale  that  dates  back  to  1941  and  is  no  longer 
aligned  with  current  market  values.  This  may 
impact  on  the  price  of  housing  and  on  housing 
supply, 
regarding  unoccupied 
property.  Luxembourg  is  reflecting  on  ways  to 
address  the  housing  challenge,  including  through 
taxation (Section 3.2.3). 

in  particular 

tax  revenues 

Transport fuel taxes rates are among the lowest 
in  the  EU,  while  these  taxes  remain  the  main 
source  of  environmental 
in 
Luxembourg. While revenues from transport fuel 
taxes  are  well  above  the  EU  average  (1.5 %  in 
2018 vs 1.3 % of GDP in the EU on average), tax 
rates  on 
transport  fuels  for  private  use  are 
relatively  low.  They  are  also  lower  than  in 
neighbouring  countries (21),  inducing  cross-border 
fuel purchasing which enables the country to raise 

(21)  It  is  noted  however  that  Belgium  offers  a  tax  rebate  on 

diesel used for professional purposes. 

the EU average. The "Ageing Working Group risk 
scenario", which captures additional cost drivers to 
demographic and health-related factors, projects an 
even  larger  increase  of  405 %  by  2070. The  2017 
long-term  care 
focused  on 
improving  quality  of  care,  expanding  the  benefits 
package,  investing  in  preventive  services  and 
setting  clear  standards,  rather  than  addressing  the 
long-term fiscal sustainability concerns (20). 

reform  mainly 

3.1.3.  FISCAL FRAMEWORK 

The National Council of Public Finances issued 
a number of recommendations to improve fiscal 
forecasts. Luxembourg’s independent fiscal body, 
the  new  composition  of  which  was  approved  in 
March 2019, suggested some improvements to the 
authorities’  fiscal  forecasting  processes.  These 
notably  included  necessary  improvements  to  the 
methodology used by the national statistical office 
to  measure  GDP  and  produce 
(STATEC) 
macroeconomic 
authorities 
forecasts. 
answered  to  the  evaluation  formulated  by  the 
National  Council  of  Public  Finances,  and  among 
others  highlighted 
the  macroeconomic 
that 
scenario  underlying  the  budgetary  projections  is 
under the  responsibility of the STATEC, which is 
an independent body. 

The 

3.1.4.  TAXATION 

of 

property 

consumption, 

Luxembourg’s  tax  burden  was  close  to  the  EU 
average  in  2018,  but  had  a  higher  share  of 
corporate  income  tax  revenues  and  a  lower 
share 
and 
environmental  tax  revenues.  Total  tax  revenues 
amounted to 39.3 % of GDP in 2018, in line with 
the  EU  average  (39.2  %  of  GDP).  Corporate 
income tax revenues amounted to 5.8 % of GDP in 
2018,  which  is  among  the  highest  in  the  EU. 
Corporate  income  tax  revenues  have  increased  in 
2019,  which  is  in  part  due  to  the  introduction  of 
the  compulsory  electronic  tax  return.  Revenues 
from  value  added  tax,  property  taxation  and 
environmental  taxation  were  all  below  the  EU 
average.  Around 43 % of tax revenues came from 

(20)  OECD/European  Observatory  on  Health  Systems  and 
Policies  (2019),  Luxembourg:  Country  Health  Profile 
2019,  State  of  Health  in  the  EU,  OECD  Publishing, 
Paris/European  Observatory  on  Health  Systems  and 
Policies, Brussels 

22 

 
                                                           
                                                           
3.1. Public finances and taxation 

payments 

taxes, 
interest, 

royalties 
to 

outbound 
and 
companies 

of 
withholding 
from 
dividends, 
Luxembourg-based 
non-EU 
jurisdictions  could  lead  to  little  or  no  taxation  if 
these  payments  are  not  taxed  or  taxed  at  a  low 
level  in  the  recipient  jurisdiction.  Inward  and 
outward  foreign  direct  investments  are  among  the 
highest in the EU, with a majority linked to special 
purpose entities (25). According to an International 
Monetary  Fund  working  paper  (J.  Damgaard,  T. 
Elkjaer  and  N.  Johannesen  (2019),  What  is  Real 
and  What  is  Not  in  the  Global  FDI  Network?), 
Luxembourg  is  the  biggest  recipient  of  foreign 
direct investment  held by  special purpose entities, 
worldwide.  The  level  of  capital  flows  (dividends, 
interest,  but  also  royalties)  is  also  among  the 
highest in the EU, and at a high level compared to 
the 
(see  European 
the  economy 
Commission  (forthcoming),  Tax  policy  survey  in 
the European Union 2019). Luxembourg is a small 
open economy, with a large financial sector, which 
partly  explains  those  financial  flows.  However, 
they  also  reflect  the  large  presence  of  foreign-
the  country,  which 
in 
controlled  companies 
treasury 
financing  or 
intra-group 
undertake 
operations (IMF (2018), Article IV Consultation). 

size  of 

least €1.2 million for an uninterrupted period of at least 12 
months.  

(25)  A special purpose entity is a legal entity that has little or no 
employment,  operations  or  physical  presence  in  the 
jurisdiction  where  it  is  located.  It  is  related  to  another 
corporation, often as its subsidiary, and is typically located 
in another jurisdiction. 

sizeable tax revenues despite low rates. Moreover, 
the level of tax on diesel remains low compared to 
the  unleaded  petrol  duty,  despite  diesel  having 
higher  carbon  content.  Luxembourg  increased  in 
2019  excise  duty  on  petrol  (+1  cent/litre)  and 
diesel (+2 cents/litre).  

total 

(4.4 % 

revenues 

The overall revenues from environmental taxes 
were  the  lowest  in  the  EU  in  2018.  This  is  the 
case when considering environmental tax revenues 
as  share  of 
in 
tax 
Luxembourg  and  6.1 %  in  the  EU)  and  as  a 
percentage  of  GDP  (1.7 %  in  Luxembourg  and 
2.4 %  in  the  EU).  Luxembourg’s  Government  is 
reflecting  on  further  changes  of  its  environmental 
taxation  to  encourage  a  less  polluting  behaviour. 
According  to  the  outline  of  the  National  Energy 
and Climate Plan (22) presented in December 2019 
(Ministry  of 
the  Environment,  Climate  and 
Sustainable  Development  and  Energy  Department 
of  the  Ministry  for  Energy  and  Spatial  Planning, 
2019),  Luxembourg  would  introduce  a  carbon  tax 
of  € 20  per  tonne  of  CO2  from  2021,  with 
incremental  increases  over  the  following  two 
years.  The  tax  could  bring  in  an  additional  €150 
million  of  revenue,  half  of  which  would  be 
earmarked  to  support  households  in  need,  while 
the  rest  would  be  invested  in  measures  aimed  at 
advancing  the  “ecological  transition”  (Delano, 
2019 / Gouvernement, 2019 (23)). 

Economic evidence suggests that Luxembourg's 
tax rules are used by companies that engage in 
aggressive  tax  planning.  The  rules  identified  as 
being of particular concern include the absence of 
withholding taxes on interest and royalty payments 
(Graph  3.1.1),  and  the  possible  exemption  from 
withholding  tax  on  dividends  with  treaty  partners 
(24).  Due  to  the  absence  or  possible  exemption  of 

(22) The Commission will assess, in the course of 2020, the final 
National  Energy  and  Climate  Plan.  Luxembourg  has  not 
submitted its plan yet. 

(23)  Overview  of  the  PNEC:  https://gouvernement.lu/dam-
assets/documents/actualites/2019/12-décembre/PNEC-
synthese.pdf 

(24)  There  may  be  an  exemption  from  withholding  tax  on 
dividends paid to a company resident in a country that has 
a bilateral tax treaty with Luxembourg and is fully subject 
to an income tax comparable to the Luxembourg corporate 
income  tax  (Article  147  of  the  income  taxation  law  –Loi 
concernant  l'Impôt  sur  le  Revenu).  In  practice,  an  income 
tax  is  considered  comparable  if  it  applies  to  a  similar  tax 
base,  with  a  statutory  rate  which  is  at  least  half  of 
Luxembourg’s corporate income tax rate. To be applicable, 
the  parent  company  is  required  to  have  at  least  10  % 
participation or a participation with an acquisition cost of at 

23 

 
                                                           
                                                                                   
3.1. Public finances and taxation 

Graph 3.1.1:  Outgoing interest payments in the EU and 
share going to offshore financial centres.  
Average 2013-2017, (€ billion) 

Countries which do not publish the share of interest 
payments going to OFCs. BE, CY, EE and IE do not publish 
data on separate incoming and outgoing interest 
payments.  
Source: Eurostat 

reforms 

to  address  aggressive 

that rulings cannot have a period of validity longer 
than  five  tax  years.  Therefore,  all  advance  tax 
rulings  granted  before  2015  are  automatically 
invalidated  as  of  the  end  of  fiscal  year  2019 
(pursuant to Article 5 of the 2020 Budget). Beyond 
implementing  EU  and 
internationally  agreed 
initiatives,  Luxembourg  has  not  yet  announced 
tax 
concrete 
planning,  in  particular  by  means  of  outbound 
payments  (since  the  publication  of  the  2019 
country  report).  However,  Luxembourg  reported 
that  it  has  plans  to  address  the  issue  of  outbound 
payments  with  regard  to  jurisdictions  included  in 
the EU list of non-cooperative jurisdictions for tax 
purposes.  No  specific 
information  has  been 
provided  allowing  to  assess  the  effect  of  these 
measures  in  limiting  the  scope  for  aggressive  tax 
planning,  in  particular  by  means  of  outbound 
payments,  and  their  impact  on  the  corporate 
income  tax  revenue  in  the  medium  term.  These 
effects remain to be assessed. 

to 

initiatives 

tax  planning.  Further 

Luxembourg  is  implementing  European  and 
to  curb 
internationally  agreed 
aggressive 
the 
transposition of the Anti-Tax Avoidance Directive 
("ATAD1") Luxembourg adopted the transposition 
of  the  Anti-Tax  Avoidance  Directive  as  regards 
hybrid  mismatches  ("ATAD  2")  on  19  December 
the  Multilateral 
2019.  On  1  August  2019, 
Convention  to  Implement  Tax  Treaty  Related 
Measures  to  Prevent  Base  Erosion  and  Profit 
Shifting  (‘Multilateral  Instrument’)  entered  into 
force  in  respect  of  Luxembourg.  Luxembourg  has 
chosen  to  apply  this  instrument  to  all  its  Treaty 
partners. Currently, 21 Treaties have been affected 
by  the  Multilateral  Instrument,  given  that  both 
Luxembourg  and  its  Treaty  partners  need  to  have 
joined  the  convention,  ratified  the  Multilateral 
Instrument  and  included  each  other  in  the  list  of 
covered  tax  agreements.  Luxembourg  has  put  a 
reservation on numerous articles of the Multilateral 
Instrument  not  forming  part  of  the  minimum 
standards.  The  country  plans  to  rely  on  bilateral 
negotiations  to  amend  its  double  tax  treaties  and 
bring them in line with the Base Erosion and Profit 
Shifting  principles  (26).  Luxembourg  codified  the 
advance  tax  ruling  procedure  in  2014,  including 

(26)  For  example,  the  recently  amended  France-Luxembourg 
Treaty  includes  the  amended  definition  of  permanent 
establishment,  while  Luxembourg  had  reserved  on  this 
article  in the MLI.  The  bilateral  (re)negotiation  of  treaties 
is  subject  to  a  prioritisation  exercise,  of  which  the  BEPS 
implementation is one criterion. 

24 

010203040MTLVSIELLTHR*SKBGDKCZROFI*PTHU*AT*SEPLITFR*ESUKDENLLUTotal going to OFCsOther 
 
                                                           
 
3.2.  FINANCIAL SECTOR 

3.2.1.  FINANCIAL SECTOR 

is 

the 

second  biggest 

Luxembourg  is  one  of  the  world’s  largest 
the  United  States, 
financial  centres.  After 
Luxembourg 
fund 
administration centre worldwide with € 4.5 trillion 
of assets  under  management (Graph 3.2.1). Banks 
channel  funds  through  Luxembourg,  which  is 
reflected  in  high  external  assets  (€  450  billion  or 
7.3 times GDP in 2018), mirrored by high external 
liabilities (€ 422 billion or 6.9 times GDP in 2018). 
However,  comparing  these  aggregates  to  national 
GDP  is  of  limited  explanatory  power,  given  the 
country’s size and financial interconnectedness.   

Graph 3.2.1:  Five main open-end funds jurisdictions, Q2 

2019 (% of world total net assets) 

income source are fees and commissions, retail and 
corporate finance banks focus on interest income.  

tend 

Employment  in  the  financial  sector  remains 
dynamic. The number of bank employees remains 
broadly  stable  around  26,500,  although  banks 
increasingly 
to  outsource  back-office 
functions  to  less  costly  jurisdictions.  Employment 
in  the  overall  financial  sector  has  been  growing 
from 45,500 in June 2016 to some 50,500 in June 
2019 (Graph 3.2.2). Job creation has mostly taken 
place  in  management  companies  administering 
funds, and in auxiliary professions of the financial 
sector, such as audit companies. Staff counts in the 
four  largest  audit  companies  nearly  trebled  since 
2007.  

Graph 3.2.2:  Persons employed in the financial sector 

Source: International Association of Investment Funds 

Luxembourg’s financial centre mostly caters to 
the  need  of  international  clients.  While  the 
country hosts the largest financial sector in Europe 
relative  to  the  size  of  the  local  economy,  in 
absolute  terms  it  is  smaller  than  London  or 
Switzerland’s  financial  centres.  The  financial 
sector  in  Luxembourg  accounts  for  a  quarter  of 
GDP  and  11.5 %  of  employment  directly.  The 
country counts 130 banks in July 2019, of which 7 
banks 
commercial 
banks.  Foreign  financial  institutions  mostly  come 
from  Europe.  Banks  established  in  Luxembourg 
can be clustered into retail banks, custodian banks, 
and private wealth banks, corporate finance banks, 
clearing  and  settlement  and  payment  institutions. 
Whereas custodian and private wealth banks’ main 

are  domestically-oriented 

Source: Commission de Surveillance du Secteur Financier 

Banking sector 

Luxembourg’s banks continue to display strong 
capital  ratios.  The  consolidated  common  equity 
tier  1  ratio (27)  of  19.2 %  in  the  second  quarter  of 
2019 was 420 and 440 basis  points above  the EU 
and  euro  area  averages,  respectively.  This  is 
largely  due  to  the  low  average  risk  profile  of 
Luxembourg’s  banks,  such  as  custodian  banks, 
which  do  not  grant  retail  loans,  and  for  which 
market  risk  and  operational  risk  outweigh  credit 
risk.  This  leads  to  lower  risk-weighted  assets 
compared  to  other  European  jurisdictions  where 
retail credit risk predominates. Luxembourg’s non-

(27)  This details the ratio between share capital to risk-weighted 

assets. 

25 

47%4%5%6%9%USFRDEIELU050001000015000200002500030000350004000045000500002013201420152016201720182019Support Financial Sector ProfessionalsSpecialised Financial Sector ProfessionalsInvestment firmsManagement companiesBanks 
 
  
  
                                                           
3.2. Financial sector 

Table 3.2.1:  Key Financial Performance indicators 

Graph 3.2.3:  Luxembourg banks - Aggregate profits and 

losses 

(1) Annualised data 
Source: European Central Bank 

performing  loans  ratio  is  among  the  lowest  in  the 
EU  at  0.7 %  of  gross  loans  as  of  Q2  2019, 
compared to 2.5 % and 3.0 % in the EU and euro 
area,  respectively.  However,  the  large  amount  of 
intra-group  loans  inflates  the  denominator  in 
Luxembourg.  Very  low  default  rates  over  the  last 
decade  have 
internal  risk 
influenced  banks’ 
models.  Like  in  other  Member  States,  once  Basel 
III reforms are fully implemented, they will lead to 
significantly 
requirements 
higher 
(European Banking Authority (2019) (28)). 

capital 

and 

study 

(28)  European  Banking  Authority  (2019),  Basel  III  reforms: 
recommendations. 

Impact 
https://eba.europa.eu/sites/default/documents/files/docume
nts/10180/2886865/62e63ce7-2e78-445e-be66-
5afacf54c7b7/Basel%20III%20reforms%20-
%20Impact%20study%20and%20key%20reccomendations
.pdf?retry=1   

key 

Source: Commission de Surveillance du Secteur Financier 

The  low  interest  rate  environment  and  rising 
operational costs weigh on banks’ profitability. 
The return on equity declined slightly over the past 
five  years  in  Luxembourg,  whereas  it  rose  on 
average  in  the  euro  area.  Banking  income  fell  by 
2.0 %  between  June  2018  and  June  2019,  mainly 
due  to  the  drop  in  interest  margin  income,  while 
commission 
increase. 
Intermediation income accounts for less than 45 % 
of  banking  income.  For  comparison,  the  latter 
amounts  to  73 %  in  neighbouring  Germany.  This 
divergence  reflects  the  relatively  lower  share  of 
traditional retail banking in Luxembourg and high 
share of custodians and private wealth banks, with 
their  main 
fees  and 
income  source  being 
commissions. They rely mainly on fees charged for 

continued 

fees 

to 

26 

-8.0-6.0-4.0-2.00.02.04.06.08.010.012.0101112131415161718Intermediation incomeCommission incomeOther net incomeStaff costsGeneral expensesBanking incomeResult before provision201420152016201720182019q2Non-performing loans1.41.10.80.70.80.7o/w foreign entities1.10.80.50.50.70.6o/w NFC & HH sectors3.72.61.91.82.22.0o/w NFC sector4.83.11.81.72.32.2o/w HH sector2.01.82.22.01.91.5Coverage ratio30.838.537.737.336.839.7Return on equity(1)7.27.27.55.75.55.7Return on assets(1)0.50.60.60.50.40.4Total capital ratio19.620.924.322.521.420.2CET 1 ratio18.420.123.521.320.319.2Tier 1 ratio18.520.223.621.820.819.7Loan to deposit ratio91.588.083.376.675.677.8 
                                                           
  
 
 
  
 
3.2. Financial sector 

Graph 3.2.4:  Net assets under management, € trillion 

to 
specialised  or  custodial  services  provided 
clients.  Overall, 
intermediation  margin 
the 
remained  broadly  constant  as  deposit  and  loan 
rates hardly moved during the past three years. The 
cost-to-income  ratio  rose  to  62.3 %  in  June  2019 
compared  to  58.3 %  in  June  2018,  as  operating 
costs  soared  by  8.1 %  over  this  period.  This  was 
driven  broadly  equally  by  staff  and  non-staff 
operating  costs,  among  others  due 
to  wage 
increases,  the  need  for  regulatory  adaptations  and 
investments in digitalisation. 

introduced  some  macro-
Luxembourg  has 
prudential  buffers  to  prevent  excessive  risk-
taking. For banks using the internal ratings based 
approach  the  risk  weight  for  residential  mortgage 
loans  is  floored  at  15 %.  In  addition,  the  counter-
cyclical capital buffer was also activated and set at 
0.25 % of risk-weighted assets as of January 2020 
and  will increase to 0.5 % of risk-weighted assets 
as  of  January  2021  (29)  (30).  Like  in  other 
jurisdictions,  Luxembourg’s  supervisor  annually 
reviews 
systemically 
important  institutions.  From  January  2020,  a 
capital  buffer  of  0.5 %  for  other  systematically 
important  financial  institution  will  be  applied  to 
seven  banks,  while  an  eighth  bank’s  other 
systematically 
institution 
buffer will be set at 1 % of risk-weighted assets. 

the  buffers 

for  other 

important 

financial 

Investment funds 

for  a  quarter  of 
Luxembourg  accounts 
European  investment  funds  net  assets.  Net 
assets  in  Luxembourg’s  funds  have  increased  by 
12.4 % in the first nine months of 2019, to about € 
4.57  trillion  (Graph  3.2.4).  Most  of  the  increase 
(86 %)  was  due  to  positive  valuation  effects. 
Luxembourg’s funds account for 26.8 % of money 
under  management  in  Europe.  The  number  of 
funds has remained quite stable around 4,000 since 
are  multiple 
2014.  Two 
compartment funds and the number of fund units is 
also relatively stable around 14,000 since 2014. 

thirds  of 

them 

(29) 

https://www.esrb.europa.eu/national_policy/ccb/html/index
.en.html 

(30)  In  accordance  with  Art.  130(2)  CRD  IV,  the  supervisor 
exempted  small  and  medium-sized  investment  firms  from 
the countercyclical capital buffer. 

Source: European Commission 

less 

some 

concerns 

regarding 

financial  assets,  while 

Liquidity  stress 
in  the  fund  sector  seems 
contained  due  to  the  low-risk  profile  of  most 
funds. 94 % of funds are invested in highly-liquid, 
standard 
liquid 
categories  make  up  the  remaining  6 %,  which 
funds’ 
generated 
potential liquidity  stress under very severe  market 
conditions  (CSSF  January  2020  newsletter,  p.  7 
(31)).  However,  the  financial  crisis  of  2008/2009 
showed that fund managers can adopt conservative 
strategies  in  stress  episodes,  selling  securities  and 
increasing  their  cash  holdings.  In  addition,  the 
supervisory  authorities  have 
their 
monitoring  of  liquidity  risk  and  dedicate  more 
attention  to  funds  invested  in  less  liquid  asset 
classes. 

increased 

institutions  keep  up  with 
Luxembourg’s 
financial  innovation,  including  green  finance. 
The  country’s  position  as  the  world’s  second 
largest  fund  administration  centre  is  supported  by 
the  high  degree  of  specialisation  of  its  financial 
sector.  Luxembourg  counts  on  a  variety  of  banks 
concentrating  only  on  custodian  activities,  a  large 
supply  of  professionals  covering  the  full  array  of 
fund administration functions, and one of Europe’s 
two  central  securities  depositories.  Luxembourg’s 
track  record  of  fast  transposition  of  EU  directives 
has  given  it  a  first-mover  advantage  and  a  legal 
financial 
environment 

that  keeps  up  with 

https://www.cssf.lu/fileadmin/files/Publications/Newsletter
/Newsletter_2020/newsletter228.pdf 

(31) 

27 

2.02.53.03.54.04.55.0201420152016201720182019Cumulated changes in market valuationCumulated changes in investment flowsAUM total value 
                                                           
  
                                                           
3.2. Financial sector 

insurance  captives  in  Luxembourg,  inter  alia  for 
tax  purposes.  Only  19 %  of  reinsurers’  staff  is 
actually  based 
in  Luxembourg.  Aggregate 
employment  in  the  insurance  sector  grew  from 
6,607  in  2014  to  8,582  in  2018  but  only  half  of 
them  work  in  Luxembourg,  as  many  companies 
use the country as a platform to branch out into the 
euro area.  

Table 3.2.2:  Key Insurance Figures 

Source: Commissariat aux Assurances 

3.2.2.  PRIVATE SECTOR INDEBTEDNESS 

Corporate indebtedness remains high, although 
leverage  appears  moderate.  The  consolidated 
debt  of  non-financial  corporations  accounted  for 
2.2 times GDP as of 2019, down from 2.4 in 2018. 
This remains well above the EU average. The ratio 
of  gross  non-consolidated  corporate  debt,  as  a 
share  of  GDP,  is  also  well  above  prudential  and 
fundamental-based  benchmarks,  with  gaps  of 
190 % and 239 % of GDP respectively in 2018. As 
explained  in  previous  reports  (see  e.g.,  Country 
Report  for  Luxembourg,  2019),  this  high  level  of 
indebtedness stems from Luxembourg's position as 
an 
treasury  centre  and 
reflects  large  amounts  of  intra-company  cross-
border  loans.  Liabilities  are  therefore  usually 
matched  by  equivalent  assets,  which  is  illustrated 
by  the  relatively  moderate  leverage  ratios  when 
comparing debt to equity or financial assets.  

international  business 

innovation.  For  instance,  Luxembourg  hosts  the 
lion share of Europe’s environmental sustainability 
funds, as its stock exchange was the first to launch 
a  green bond in 2007 and in 2016 it established a 
dedicated  section  which  lists  half  of  the  world’s 
green bonds (see also sections 3.2.5 and 3.5). 

Insurance  

is  non-life 

some  UK-based 

The Luxembourg insurance sector continues to 
grow,  and  is  expected  to  be  supported  by  the 
relocation  of 
insurance 
companies.  The  balance  sheet  of  the  insurance 
sector  amounted  to  €  241  billion (32)  in  2018 
(roughly  4  times  GDP),  making  it  one  of  the 
largest  in  Europe  in  relative  terms.  76 %  of  total 
assets  stem  from  life  insurance,  18 %  stem  from 
re-insurance,  and  6 % 
insurance 
business. Gross premiums were € 24 billion for life 
insurance,  up  by  a  2.5 %  vis-à-vis  2017,  re-
insurance premiums fell 2.5 % to € 10 billion, and 
non-life 
to  €  5  billion. 
Profitability  has  declined  in  2018  compared  to 
2017  (see  table  3.2.2),  notably  due  to  the  low 
interest  rates  environment.  So  far  11  non-life 
insurance  and  one  life  insurance  companies  have 
decided  to  relocate  their  EU-focussed  business 
units  from  the  UK  to  Luxembourg.  Establishing 
their base in the country allows them to branch out 
into the remaining EU member states, but they also 
benefit  from  facilities  such  as  the  possibility  to 
communicate  officially 
the 
insurance  supervisor.  Luxembourg  is  one  of  the 
few member states with a separate body exercising 
insurance supervision.  

increased  22.3 % 

in  English  with 

Luxembourg remains a competitive  destination 
for  intra-group  reinsurance  captives (33).  The 
Grand Duchy counts 197 reinsurers, which profits 
amounted  to  €  273  million  in  2018,  a  lower  level 
compared  to  previous  years,  notably  due  to  the 
re-insurance 
large 
in 
some 
results 
volatile 
the  closure  of  some  small 
companies  and 
industry 
undertakings.  The 
in 
Luxembourg  has  a  relatively 
large  size  and 
maintains  a  healthy  profitability.  This  underlines 
the  attractiveness  of  domiciling  intra-group  re-

re-insurance 

(32)  Rapport  Annuel  Commissariat  aux  Assurances  2018 
http://www.caa.lu/uploads/documents/files/rapport_annuel
_2018_chiffres_cles.pdf  

(33)  A reinsurance captive is a an special purpose entity set up 
by  an  international business  group  so  as  to provide  tailor-
made reinsurance services   

28 

Sector20142015201620172018Life147160173179183Non-life1112121315Reinsurance4746424343Life253224225307215Non-life175112172175159Reinsurance1202906141229527366077045713682998582Total assets (EUR bn)After tax profits (EUR M) Employment 
                                                           
 
  
 
3.2. Financial sector 

with  low  net  wealth,  low  income,  low  education, 
three  or  more  dependent  children).  For  these 
different  categories  of  disadvantaged  households, 
the  probability  of  default  ranges  from  7.7 %  to 
14.8 %  and  the  bank  losses  range  from  8.7 %  to 
14.1 %  of  their  exposure  to  these  household 
groups.  In  parallel,  an 
increasing  share  of 
households  have  reported  difficulties  in  paying 
rent or mortgage instalments (Statec, report Travail 
et  cohésion  sociale  au  Luxembourg  2019),  with 
vulnerable  households  (such  as  single-parent 
families) disproportionately affected.  

Graph 3.2.6:  Key households indebtedness ratios 

Source: European Commission 

The  European  Systemic  Risk  Board  (ESRB, 
2019)  issued  a  recommendation  in  2019  to 
address  vulnerabilities  in  the  residential  real 
estate  sector.  Following  a  warning  from  the 
European  Systemic  Risk  Board  in  2016,  the  2019 
recommendation  singled  out  the  high  mortgage 
stock  and  house  price  growth,  which  suggests 
some  price  overvaluation,  in  combination  with 
high and rising household indebtedness. Referring 
to  a  law  on  borrower-based  measures  approved 
after  the  publication  of  the  recommendation,  the 
European  Systemic  Risk  Board  recommends 
loan 
income, 
activating 
to 
limits. 
debt-service 
Furthermore, 
the  already 
the  board  assesses 
enacted  macro-prudential  measures  as  only 
term 
partially  sufficient 
recommends 
alia, 
vulnerabilities. 
Luxembourg 
the  structural  housing 
under-supply. 

to  value,  debt 
income  and  maturity 

to  address  medium 
it 

Inter 
tackle 

to 

to 

Graph 3.2.5:  Non-Financial Corporations Indebtedness 

Ratios 

Source: European Commission 

Households'  indebtedness  is  high  compared  to 
income,  although  the  aggregate  net  wealth 
position  is  favourable.  Household  debt  remains 
moderate  as  a  share  of  GDP  (66 %  in  2018)  and 
accounts  for  a  modest  share  of  households' 
financial  assets  (40 %  in  2018).  This  results  in  a 
largely  positive  aggregate  net  asset  position  of 
households  of  about  100 %  of  GDP.  However, 
Luxembourg’s  GDP  per  capita  ratio  is  biased  due 
to  the  large  number  of  cross-border  workers,  and 
therefore  debt  sustainability  is  better  measured 
when compared to income levels. Household debt 
accounted for 174 % of gross disposable income in 
2018,  one  of  the  highest  levels  in  the  EU,  as 
housing  prices,  and  mortgages,  continue  to  rise 
faster  than  income.  A  majority  of  household  debt 
stock is composed of variable-rate contracts (BCL, 
2019),  although  new  loans  now  incorporate  a 
majority  of  fixed-rate  contracts.  This  increases 
households’ exposure to a potential significant rise 
in interest rates.   

Rising indebtedness generates some concerns as 
to  the  solvency  risks  for  some  lower  income 
households.  As  illustrated  in  previous  country 
reports (European Commission, 2018, 2019), these 
concerns  would  arise  notably  in  case  of  rising 
interest  rates  or  economic  downturn.  A  recent 
stress 
in 
Luxembourg (Giordana, Ziegelmeyer, ECB, 2019) 
highlighted a substantial default risk among socio-
economically disadvantaged households (i.e. those 

to  households 

scenario 

applied 

29 

050100150200250300030507091113151719*Ratios of debt to equity, GDP and total financial assets (%)Debt / GDPDebt / equityDebt / financial assets80901001101201301401501601701803035404550556065700304050607080910111213141516171819*% GDI% of GDP and assetsDebt / GDP, Households (lhs)Debt / fin. assets, Households (lhs)Debt / gross disposable income, Households (rhs) 
  
  
3.2. Financial sector 

estimated overvaluation of 10 % (Banque Centrale 
du  Luxembourg,  2019)  and  7.5 %  (International 
Monetary  Fund,  2019).  Although  the  range  of 
estimates  is  wide,  there  seems  to  be  a  consensus 
pointing  towards  some  overvaluation  of  housing 
prices.   

Graph 3.2.7:  Evolution of mortgage loans and real housing 

prices 

Source: European Commission 

is  notably 

The  growth  in  housing  prices  is  driven  by 
dynamic  demand,  largely  exceeding  supply. 
Housing  demand 
stimulated  by 
demographic  growth,  which  reached  19.9 %  in 
total  from  2010  to  2018,  mostly  due  to  the  high 
workforce  needs  of  Luxembourg's  dynamic 
economy.  This  also  results  in  a  large  share  of 
commuting 
cross-border  workers.  Benign 
financing  conditions  have  also  supported  housing 
price increases (Banque Centrale du Luxembourg, 
2018). 
remains 
In  parallel,  housing  supply 
insufficient,  as  pointed  out  in  previous  country 
reports (European Commission, 2019). Investment 
in  dwellings  remains 
the  pace  of 
construction  of  new  dwellings  remains  only 
slightly  above  the  annual  average  observed  since 
2000  (2,700  new  housing  units  per  year).  As  a 
result  the  built-up  areas  in  Luxembourg  increased 
marginally in the past two decades (Luxembourg’s 
built  up  area  only  moved  from  8.1 %  of  the 
territory in 2000 to 9.8 % in 2017).  

low,  as 

insufficient 
Housing  supply 
incentives to extend built-up areas. Landowners 
have  little  incentive  to  sell  or  develop  land  as  the 

limited  by 

is 

2019. 

law 
authority, 

The 
designated 

The  legislation  authorising  the  activation  of 
mortgage  borrower-based  tools  was  adopted  in 
authorises 
December 
the 
Luxembourg’s 
Commission de Surveillance du Secteur Financier 
(CSSF), to impose stricter limits on loan to value, 
loan  to  income,  debt  to  income,  debt  service-to-
income ratio, and loan maturities. Limits can only 
unanimous 
following 
be 
recommendation 
Luxembourg’s 
issued 
systemic  risk  committee  (SRC).  The  supervisory 
role  of  the  Luxembourg  Central  Bank  has  been 
to 
further 
residential  real  estate  related  information  held  by 
central government bodies. 

reinforced  by  a  broader  access 

applied 

by 

a 

3.2.3.  HOUSING  

time  housing 

The  growth  of  housing  prices  has  accelerated. 
Real residential property prices increased by 8.7 % 
on  an  annual  basis 
in  June  2019,  a  clear 
acceleration  compared  to  recent  years.  The  recent 
acceleration  might  have  been  influenced  by  the 
sale of a series of high-end housing projects. At the 
same 
loans  have  continued  to 
progress  at  a  relatively  stable  annualised  rate  of 
8.3 %  in  June  2019,  while  real  gross  disposable 
income rose at a more moderate pace of 1.6  % in 
2018.  However,  no  short-term  macro-financial 
stability  concerns  emanate  from  housing  loans. 
Recent sensitivity analyses signal that banks could 
withstand  a  substantial  rise  of  loan  defaults  and 
dramatic  house  price  corrections  without  their 
capital  ratios  falling  below  regulatory  minima 
given  their  large  capital  cushions  (see  European 
Commission,  2019).  Nonetheless, 
the  ESRB 
recommendation  aims  to  prevent  the  build-up  of 
unsustainable  exposure  to  credit  risk  stemming 
from the residential housing sector. 

Valuation gap estimates point to a risk of price 
overvaluation  in  Luxembourg.  Prices  appear 
markedly  above  their  long-term  average  when 
compared to the level of rents and income, with a 
gap of 51 % and 44 % respectively in 2018. This 
rather large overvaluation estimate contrasts with a 
negative  model-based  valuation  gap  estimate 
taking  into  account  other  fundamental  variables 
(Graph  3.2.8).  The  overall  house  price  gap 
calculated  by  the  Commission,  an  average  of  the 
above  indicators,  shows  signs  of  an  overvaluation 
institutions  have 
of  prices  of  28  %.  Other 

30 

-4-2024681002468101210Q111Q112Q113Q114Q115Q116Q117Q118Q119Q1Rate of change y-o-y (%)Rate of change y-o-y (%)MFI loans for house purchase (y-o-y growth rate)Real House Price Index (y-o-y growth rate), right axis 
  
3.2. Financial sector 

latter represents a virtually risk-free and low-taxed 
asset.  Given 
the  fundamental  supply/demand 
mismatch,  prices  are  expected  to  increase  further; 
therefore,  ensuring  real  estate  remains  a  very 
attractive  asset  class  in  the  current  low  yield 
environment. Although higher recurrent land taxes 
could  put  a  dent  on  expected  returns,  this  would 
not fundamentally alter the incentive to hoard land. 
The  European  Systemic  Risk  Board  advised 
Luxembourg  to  review  its  mortgage  interest  tax 
deductibility  which  may incentivise  households to 
over-borrow, 
the  fundamental 
supply/demand mismatch further.   

thus  worsening 

Graph 3.2.8:  Evolution of housing prices compared to 

valuation benchmarks 

3.2.4.  ANTI-MONEY LAUNDERING 

Luxembourg displays very high levels of foreign 
direct  investment  associated  with  widespread 
use  of  highly  complex  corporate  structures.  In 
2018,  Foreign  Direct  Investment  (FDI)  assets  and 
liabilities  amounted  to  around  €5 trillion  and 
€4.5 trillion (Eurostat) respectively, 95% of which 
is concentrated in special purpose entities (Sociétés 
de  Participations  Financières,  SOPARFI  – 
Banque  Centrale  du  Luxembourg,  2019).  These 
entities  appear 
to  be  mainly  foreign  direct 
investment  conduits,  i.e.,  foreign  investment  that 
does not flow into Luxembourg’s economy, but is 
further transferred to other jurisdictions. 

the 

purpose 

Mitigating  secrecy  is  key  to  prevent  illegal  use 
of  companies  and  systemic  abusive  practices. 
Insufficient  registers  connecting  foreign  direct 
investment  conduits  to  ultimate  investors  make  it 
difficult  to  identify  the  source  of  financial  flows 
and 
transactions.  Clear 
of 
identification  of  the  ultimate  beneficial  ownership 
of  special  purpose  entities  and  other  legal  entities 
drastically  reduces  the  incentives  to  use  them  for 
money 
laundering.  Luxembourg's  Register  of 
beneficial  owners  includes  87%  of  the  legal 
entities  active  in  the  country.  While  this  figure 
shows  a  very  good  population  of  the  register, 
agencies 
foreign-owned 
non-financial, 
companies  have been less responsive (between 30 
and 40% of them have registered). 

of 

Source: European Commission 

Some  initiatives  are  planned  to  raise  housing 
supply.  The  Luxembourg  government  plans  to 
review  the  legislative  framework  regarding  social 
and  affordable  housing  to  make  it  easier  for 
municipalities  and  social  housing  bodies  to  use 
public  land  to  build  new  units.  The  focus  is 
expected  to  shift  away  from  selling  affordable 
supply  of 
increasing 
housing 
affordable  rental  housing.  Regulations  are  also 
expected  to  be  adapted  so  as  to  make  local 
planning  contracts  more  binding  on  landowners. 
The  government  also  intends  to  review  land  and 
property taxes in order to increase the opportunity 
costs  of  holding  vacant  land  (see  also  section 
3.1.4). 

towards 

the 

in 

exposure 

laundering 

laundering 

to  money 

terms  of  money 

The National Risk Assessment highlights a risk 
of 
for 
professionals  involved  in  the  provision  of  trust 
and  company  services  or  investment  services 
(34). Tax crimes are among the most likely external 
threats 
that 
Luxembourg faces, for which it has received most 
requests  for  mutual  legal  assistance  from  other 
countries.  Professionals  involved  in  the  provision 
of 
including 
accountants, lawyers and tax advisors, as well as in 
the investment  sector, present a high inherent risk 
of  exposure  to  money  laundering  given  their  role 
as  gatekeepers 
sector’s 
and  due 
fragmentation.  Supervision  by  their  collective 
bodies  remains  however  limited.  Out  of  almost 

trust  and  company 

services, 

the 

to 

(34)  Government of Luxembourg, Ministry of Finance, National 
terrorist 

laundering  and 

risk  assessment  of  money 
financing, 2018 

31 

-50-40-30-20-1001020304050609900010203040506070809101112131415161718% deviation of current priceModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap 
  
                                                           
3.2. Financial sector 

sustainable  finance,  including  launching,  in  2016, 
the  Luxembourg  Green  Exchange  as  the  world’s 
first  platform  exclusively  dedicated  to  sustainable 
securities.  In  2018,  Luxembourg  established  the 
first  legal  framework  for  green  covered  bonds  in 
the  world. The  country  has an opportunity to lead 
on  climate  finance,  playing  a  key  role  at  the 
international  level  to  foster  a  green  transition 
through  financial  instruments,  while  diversifying 
its financial sector.  

the  skills  of 

Significant investments are certainly needed for 
Luxembourg to achieve the ambitions set out in 
its  Sustainable  Finance  Roadmap.  However,  no 
formal assessment on the size of these investments 
appears  to  have  been  undertaken.  In  any  case,  it 
may be expected that the financial sector should be 
able to make the investments necessary to maintain 
employment  and  develop 
its 
to  public  funds, 
workforce  without  recourse 
the  Paris 
national  or  EU.  When 
the  government  of  Luxembourg 
agreement, 
committed  to  supporting 
international  climate 
finance  with  a  contribution  of  €  120  million 
between  2014  and  2020  (European  Investment 
Bank,  2016).  By  focusing  on  sustainable  finance 
and  on  the  disclosure  of  climate  related  risks, 
Luxembourg  can  manage  the  risks  and  maximise 
the  opportunity  that  the  low  carbon  transition 
brings  to  its  financial  sector  (Organisation  for 
Economic Co-operation and Development, 2019). 

ratifying 

laundering 

2,500  lawyers  operating  in  the  country,  only  41 
anti-money 
inspections  have  been 
reportedly  performed  by  the  Luxembourg  Bar 
Association between 2016 and 2018 (35). Very few 
suspicious  transactions/activities  are  reported  by 
these  and  other  professionals  involved  in  the 
provision  of  trust  and  company  services  despite 
their  high  risk  profile  (only  0.5 %  of  reports 
received  by  the  FIU  in  2018),  pointing  to  limited 
understanding 
risks. 
Reporting  by  specialised  companies  (sociétés  de 
domiciliation) is higher (3% of all reports received 
by the  Financial Intelligence  Unit (FIU) in 2018), 
but  supervisory  activities  still  highlight  important 
weaknesses  in  the  application  of  the  anti-money 
laundering  framework,  including  lack  of  adequate 
risk  analysis  and  customer  due  diligence  and 
failures  to  report  suspicious  transactions/activities 
to the FIU (36). 

identification 

and 

of 

3.2.5.  SUSTAINABLE FINANCE  

to 

are 

investors 

developed 

Luxembourg's  financial  sector,  and  the  sectors 
exposed  to  it,  are  adapting  to  policies  and 
instruments 
promote 
sustainability  practices.  A  growing  number  of 
international 
integrating 
environmental and social governance objectives in 
their  strategies.  As  these  sustainable  investment 
trends  take  root  and  expand,  they  can  have  a 
stronger  influence  on  the  operational  policies  and 
In 
practices  of  multinational 
expectation of these trends, Luxembourg launched 
in  2018  its  Sustainable  Finance  Roadmap  (37), 
which established a strategy for sustainable finance 
contributing to the Agenda 2030, while promoting 
Luxembourg’s  financial  centre  as  a  first-mover  in 
sustainable  finance  initiatives  and  a  sustainable 
finance ready provider. 

corporations. 

Luxembourg’s large financial sector can benefit 
from  the  growing  sustainable  finance  market, 
while  supporting  the  environmental  transition 
(Section  3.5).  In  recent  years,  Luxembourg  has 
taken  some  pioneering  initiatives  in  the  field  of 

(35)  https://www.wort.lu/fr/luxembourg/barreau-de-

luxembourg-la-vigilance-est-maintenue-concernant-le-
blanchiment-5baa3607182b657ad3b93868 

(36) 

https://www.cssf.lu/fileadmin/files/Publications/Rapports_
annuels/Rapport_2018/CSSF_RA_2018.pdf 

(37)  See the Luxembourg Sustainable Finance Roadmap. 

32 

 
                                                           
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

3.3.1.  LABOUR MARKET 

largely  be 

the  result  of 

Strong  job  creation  continues  on  the  back  of 
economic  performance.  Employment 
good 
growth  remained  robust  in  2019  at  3.8%  year-on-
year  in  the  second  quarter  (38).  This  trend  is 
expected to slightly slow down over the following 
months. According to national data (39), this slower 
growth  would 
the 
deceleration  of  resident  employment,  whereas 
cross-border  employment  growth  should  remain 
almost at the same level (4.7 % in 2019) (40). This 
is  related  to  reported  unemployment  traps(41)  (see 
European  Commission  2017,  page  29  and  2018, 
page  29,  and  Organisation  for  Economic  Co-
(42))  and 
operation  and  Development  2019 
in 
experienced 
difficulties 
providing the resident workforce with the required 
skills.  Despite  an 
increase,  precarious  work 
remains  below  the  EU  average  (1.6 %  against 
2.2 % in 2018). 

in  Luxembourg 

The level of unemployment remains low but its 
decrease seems to have stalled. The sustained fall 
in unemployment over the last three years came to 
a  halt  in  February  2019.  This  could  be  due  to  the 
compulsory  registration  of  the  Revenu d’inclusion 
sociale (REVIS) beneficiaries with the employment 
service,  following  the  entry  into  force  in  January 
2019  of  the  law  reforming  the  social  minimum 
income,  which  requires  every    member  of  the 
household  who  is  considered  capable  of  seeking 
ordinary  employment  to  register  (43).  The  Revenu 
d’inclusion  sociale 
is  an  activation  benefit 
consisting in an allowance for activities organised 
by  the  social  inclusion  office,  such  as  community 
work  or  activities  favouring  social  stabilisation.  It 
is  expected  to  foster  social  inclusion.  In  October 

(38)  Eurostat Press Release 05.12.2019 
https://ec.europa.eu/eurostat/documents/2995521/10081871/2-
05122019-AP-EN.PDF/ca0d3450-07e5-082b-f7bc-
4486502c285a 

(39)  https://statistiques.public.lu/catalogue-publications/note-

conjoncture/2019/PDF-NDC-01-19.pdf 

(40)  Cross-border  employment  accounts  for  44%  of  total 

employment in 2018.  

(41)  The 'unemployment trap' measures what percentage of the 
gross  earnings  (after  moving  into  employment)  is  'taxed 
away' by the combined effects of the withdrawal of benefits 
and higher tax and social security contributions. 

(42)  OECD Economic Survey - Luxembourg - July 2019 (pages 

27-28) 

(43)  In  October  2019, 

this  scheme 
represented  13%  of  people  registered  in  the  public 
employment service. 

the  beneficiaries  of 

in 

(as 

2018).  However, 

2019, the number of resident jobseekers registered 
with the public employment service  (Agence pour 
le développement de l’emploi – ADEM) had grown 
1.8  %  year-on-year  and  the  national  seasonally 
adjusted  unemployment  rate,  as  calculated  by  the 
national  statistics  institute  (STATEC)  was  5.3 % 
(44) 
long-term 
unemployment has dropped sharply, from 2.1 % in 
2017 to 1.4 % in 2018. The significant increase in 
the number of people registered as unemployed for 
six  to  eleven  months  since  2018  signals  that  this 
positive  trend  could  come  to  a  halt  (45).  Youth 
unemployment decreased further to 13.8% in 2018 
and  the  Social  Scoreboard  indicator  representing 
the  rate  of  young  people  not  in  employment, 
education  or  training  fell  from  5.9%  in  2017  to 
5.3% in 2018.  The rise in the unemployment rate 
of  people  with  medium  and  high  qualification 
levels  is  partly  due  to  an  increase  in  registrations 
and  a  higher  job  rotation  but  may  also  point  to 
increasing skills mismatches. 

Graph 3.3.1:  Activity, unemployment, long-term 

unemployment, youth unemployment and 
NEET rates 

NEET: Not in employment, education or training 
Source: Eurostat, LFS (Labour Force Survey) 

Employment  and  activity  rates  continued  to 
grow,  but  remain  below  the  EU  average.  They 
reached  respectively  72.1%  and  76.1%  in  2018 

(44)  ADEM, Chiffres-clés Octobre 2019 
(45)  The  increase  is  28 %  between  September  2018  and 
September 2019. It is also interesting to note that the public 
employment  service  provides  statistical  data  according  to 
the  following  age  groups:  <30  –  30/44  -  >  45.  ADEM  - 
Chiffres-clés - Septembre 2019 

33 

646668707274767805101520252000200120022003200420052006200720082009201020112012201320142015201620172018%%Activity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)NEET rate 15-24 (lhs) 
 
                                                           
  
                                                           
3.3. Labour market, education and social policies 

(against  71.5%  and  75.5%  respectively  in  2017). 
More  could  nonetheless  be  done  to  increase  the 
activity 
reach 
rate  of  certain  groups  and 
Luxembourg’s Europe 2020 employment target of 
73%, particularly with regard to older workers and 
the  low  skilled.  The  share  of  the  labour  force 
partially  disconnected 
labour  market 
(discouraged  workers  who  have  given  up  looking 
for a job because they believe it is not possible to 
find  one  and  people  seeking  work  but  not 
immediately  available  for  work  in  the  next  two 
weeks) is rather high in Luxembourg (6.2%), with 
the  young  being  the  largest  component  and  the 
low-educated representing more than half of it. 

the 

to 

Graph 3.3.2:  Unemployment rate and potential additional 

labour force 

as 

such 

senior 

retirement  remains  a  concern  especially  for  men: 
in 2018, 55.8 % of inactive  men aged 50-59  were 
inactive  due  to  retirement.  This  figure  rises  to 
81.1 %  for  those  aged  55-64.  Some  schemes 
targeting 
the 
jobseekers 
professionalisation  placement  programme  (six-
week  work  placement)  and 
the  reintegration 
employment  contracts  (12  months)  have  poorer 
outcomes  in  2019  for  people  aged  45  and  more. 
The government intends to relaunch the legislative 
process  concerning  the  Age  Pact  with  a  focus  on 
health  and  safety  at  work,  which  could  help 
keeping older workers in employment. Raising the 
participation  of  seniors  would  require  additional 
measures  aiming  at  reinforcing  or  creating  new 
incentives,  for  example 
them  better 
integrate life-long learning programs conducive to 
longer stays in the labour market. Limiting access 
to benefits for early retirement appears to be a key 
factor 
to 
population  ageing  in  Luxembourg  (see  section 
3.1).  

integrated  policy 

approaches 

to  help 

in 

People  born  outside  the  EU  tend  to  face  a 
weaker  social  situation.  Non-EU  born  residents 
face  a  high  unemployment  rate  at  14.3%  in  2018, 
below  average  incomes  and  a  very  high  risk  of 
poverty or social exclusion, at 40.8% in 2018. On 
the  other  hand,  the  employment  rate  of  second-
generation  people  (aged  15-34)  moved  closer  to 
that of the natives with a low gap of 3.7 percentage 
points. 

Despite  the  increasing  participation  of  women 
in employment, there is still untapped potential. 
The  labour  market  features  overall  high  levels  of 
gender  equality  and  social  protection  coverage. 
The  gender  employment  gap  has  halved  to  8 
percentage points since 2011 and is below the EU 
average. The gender pay gap, at 5% in 2018, is one 
of the lowest in the EU. The part-time employment 
gap  has  also  narrowed  over  the  last  years  but 
remains  high  (26.1  percentage  points  in  2018), 
with  more  than  80%  of  part-time  jobs  being  held 
by  women.  Despite  a  high  percentage  of  children 
under  3  years  old  in  formal  childcare  (60.8%  in 
2017  against  34.2%  in  the  EU  according  to 
Eurostat),  the  female  employment  rate  has  only 
slightly  improved  to  68 %  in  2018  and  31.4% 
women  work  part-time  in  2018  (35.1%  in  2017), 
slightly  above  the  EU  average.  The  employment 
rate  of  non-EU-born  women  remains  particularly 
weak,  as  compared  to  national  and  EU  averages 

Source: Eurostat, LFS (Labour Force Survey) 

The  activity  and  employment  rates  are 
particularly  low  for  older  workers.  Workers 
aged  55-64  record  activity  and  employment  rates 
of respectively 42 % and 40.5 %, far below the EU 
average.  With  activity  and  employment  rates  of 
people above 60 remaining very low, the situation 
has  improved  somewhat  for  workers  aged  55-59. 
There  are  significant  differences  according  to 
educational attainment though. While only 42.9 % 
of people aged 55-59 having completed only lower 
secondary  level  (levels  0  to  2  of  the  International 
Standard  Classification  of  Education)  are  still 
active (against 62.5 % on EU average) and 12.4 % 
of  those  aged  60-65  (35.6 %  on  EU  average), 
figures jump respectively to 77.8 % and 40.5 % for 
people having a tertiary degree. Early exit from the 
to  early  retirement  or 
labour  market 

linked 

34 

024681012141618202008Q12008Q32009Q12009Q32010Q12010Q32011Q12011Q32012Q12012Q32013Q12013Q32014Q12014Q32015Q12015Q32016Q12016Q32017Q12017Q32018Q12018Q32019Q1% of labour forceUnemployment rateAvailable but not seekingUnderemployedSeeking but not available 
  
3.3. Labour market, education and social policies 

rates  according  to  the  level  of  qualification  are 
more  contained,  with  unemployment  among  low-
skilled  workers  aged  25-64  at  6.5 %  in  2018, 
against  4.1 %  for  the  high-skilled(49).  However, 
almost  50  %  of 
just 
completed  lower  secondary  education  and  tend  to 
display much longer unemployment spells. 

the  unemployed  have 

Graph 3.3.3:  Employment rate by educational attainment 

Source: Eurostat, LFS (Labour Force Survey) 

secondary 

improvement 

Despite  substantial 
in  adult 
participation  in  learning  since  2008,  there  is 
scope  for  further  progress  to  strengthen  low-
skilled  and  older  workers’  employability.  In 
Luxembourg,  the  share  of  adults  with  at  least 
attainment  has 
education 
upper 
increased  between  2008  and  2018 
(+10.7 
percentage points), reaching 78.6 %, slightly above 
the  EU  average.  For  basic  and  advanced  digital 
skills,  Luxembourg  scores  highest  together  with 
Finland,  according 
the  Digital  Agenda 
to 
Scoreboard. 18% of adults surveyed in 2018 had a 
learning  experience  in  the  previous  four  weeks, 
against an EU average of 11.1 %, with the country 
being  among  the  Member  States  recording  the 
most  significant 
last 
decade.  Despite  the  higher  public  support  (35% 
instead of 20% of the costs) to firms’ training for 
low-skilled  employees  and  people  over  45,  those 
categories participate in training twice less than the 
employed 
Low-skilled 
employees  represent  13.9 %  of  the  workforce  but 

improvements  over 

population 

overall. 

the 

(49)  Eurostat  (NB  national  data  from  the  national  statistics 
institute  show  a  higher  gap  with  respectively  8.4 %  and 
4.3 %) 

(53.2 %  against  69.2 %  and  73.6 %  respectively) 
and no data is available on the use of childcare by 
non-EU born mothers.  

and 

primary 

education 

Recent  policy  measures  aiming  at  improving 
work-life  balance  for  parents,  such  as  the 
reforms  of  parental 
leave  and  childcare 
allowance  schemes,  might  further  encourage 
women  participation  in  employment  (46).  The 
government  coalition  agreement  of  December 
2018 envisaged upgrading the childcare allowance 
(47), including free childcare services for pupils in 
(non-formal 
early 
education/youth  centres)  (48).  Further  expanding 
the  availability  of  affordable  day  care  and  after-
school  programmes  could  further  improve  female 
labour  market  participation.  Seeking  to  foster 
the 
employment  participation  among  women, 
government 
the 
considers 
possibility  of  taking  part-time  work  for  family 
reasons.  The  single  form  of  the  personal  income 
tax,  which  household  members  are  entitled  to 
choose  since  2018 
replace 
is 
progressively the joint mode, as the Prime Minister 
announced  in  October  2019.  The  government’s 
intention  to  phase  in  the  individualisation  of 
taxation 
labour 
participation  of  women  too.  Moving  to  fully 
individual  income  taxation  would  make  the  tax 
system  more  gender  neutral  by  reducing  the 
marginal tax rate applied to the earnings of second 
earners, often women.  

agreement 

expected 

intended 

improve 

also 

to 

to 

is 

Training and upskilling 

The  high  inactivity  rate  among  the  low-skilled 
(36.7 %) leaves room for improvement. In 2018, 
the  share  of  low-qualified  adults  aged  25-64  in 
employment  stood  at  60.8 %  (EU  average  at 
56.8 %),  against  72.8 %  for  people  with  medium-
level  qualifications  and  84.9 %  for  those  with 
tertiary  education.  Differences  in  unemployment 

(46)  A reform in place since October 2017 introduced 20 hours 
of free childcare per week and per child and a means-tested 
hourly childcare price. 

(47)  It  would  involve  a  new  formula  to  determine  parents’ 

financial participation according to their income.  

(48)  In the last national statistics institute’s report, cost appears 
as  the  main  barrier  for  36 %  of  interviewees  about 
childcare provision (one person out of seven seeing barriers 
to childcare) 

https://statistiques.public.lu/catalogue-

publications/analyses/2019/PDF-Analyses-02-2019.pdf) 
(pages 81-82) 

35 

556065707580852000200120022003200420052006200720082009201020112012201320142015201620172018% populationHigh skilledMedium skilledLow skilled 
                                                           
  
                                                           
3.3. Labour market, education and social policies 

develop  new  skills  and  to  the  good  economic 
climate.  The  2018  Sustainable  Finance  Roadmap 
has  the  ambition  to  raise  awareness  and  integrate 
into  education  and  professional 
sustainability 
training  and  includes  recommendations  in  this 
sense. 

Luxembourg’s  sustained  economic  growth,  its 
demographics,  geographical  position  and  size 
have led to a very large increase in the number 
of  cross-border  workers  over  the  last  decade, 
together with an increase in its population. 80% 
of  the  overall  population  increase  of  Luxembourg 
in  this  period  is  due  to  people  with  a  foreign 
background  (53).  78 %  of  cross-border  workers  of 
the  Grande  Région  actually  work  in  Luxembourg 
(54)  and  their  number  is  estimated  to  further 
increase  by  100,000  between  2014  and  2035  (55). 
The  consequences  on  the  provision  and  prices  of 
housing  and  office  premises,  on  transport  system 
efficiency  and  mobility  comfort  could  severely 
hinder Luxembourg’s attractiveness and growth in 
the future (see box and section 3.5.2). 

Graph 3.3.4:  Dispersion of employment rates by level of 

education 

Source: Eurostat, LFS (Labour Force Survey) 

The  share  of  employment  in  jobs  requiring  at 
in 
secondary 
least 

education 

upper 

(53)  Resident foreigners represent 47.5 % of the total population 
in  Luxembourg  in  2019.  Among  them,  84.4  %  are  EU 
nationals.  

(54)  https://iba-oie.eu/Berichte-zur-

Arbeitsmarktsitua.24.0.html?&L=1 

participate  to  just  6.9 %  of  the  trainings  (50).  This 
increases  the  risk  of 
them  opting  for  early 
retirement  or  becoming  unemployed.  At  the  same 
time, the share of unemployed adults participating 
in  learning  in  Luxembourg  in  2018  is  one  of  the 
highest of the EU (almost 30 % against 10.7 % on 
EU average). 

information 

Against  the  background  of  low  unemployment, 
possible skills mismatches and labour shortages 
become  a  greater  concern,  particularly 
in 
sectors facing rapid technological development. 
The  variation  in  employment  rates  for  different 
skills  levels  (macroeconomic  skills  mismatch)  is 
slightly  above  the  EU  average  with  little  change 
since  2010.  In  turn,  on-the-job  skills  mismatch 
(reflecting  over-  or  under-qualification  and  a 
mismatch by field of education) is the lowest in the 
EU.  This  notwithstanding,  the  number  of  open 
positions  registered  by  employers  at  the  national 
public employment service has increased by 30 % 
between  2015  and  2018,  with  many  job  offers  in 
the  accountancy  and 
technology 
sectors  but  also  secretarial  support,  kitchen  staff, 
maintenance  of  premises,  front-office  in  financial 
markets. The umbrella business association (Union 
des  entreprises  luxembourgeoises)  also  points 
regularly to labour shortages in the sector of crafts 
and  trade.  There  was  no  candidate  for  30 %  of 
those job offers in 2018, with the highest share in 
information and communications technologies (51), 
banking and  finance (52),  which  might explain the 
increase  in  businesses’  requests  to  hire  non-EU 
staff  in  2018.    In  2019,  the  public  employment 
service  conducted an analysis on labour  shortages 
to identify the current needs in specific trades and 
occupations  in  cooperation  with  the  Luxembourg 
business  association.  The  Chamber  of  Crafts  also 
released a study and policy proposals about labour 
shortages  in  the  craft  and  small  business  sector 
according  to  which  their  most  significant  labour 
needs  appear  in  the  construction  and  engineering 
sectors  due  to  the  need  to  replace  workers  and 

(50)  Formabref, « L’Accès à la formation des salariés du secteur 
privé  en  2017 »,  octobre  2019,  Observatoire  de 
la 
formation 

(51)  Luxembourg  ranks  first  together  with  Netherlands  in  the 
share  of 
for 
information  and  communications  technology  specialists 
(firms  with  10  or  more  employees  excluding  the  financial 
sector – OECD: https://doi.org/10.1787/888933951589) 

reporting  hard-to-fill  vacancies 

firms 

(52)  https://adem.public.lu/dam-

assets/fr/publications/adem/2019/Rapport-annuel-2018-
FINAL-WEB.pdf 

(55)  Les Cahiers de la Grande Région - La Grande Région face 

à ses évolutions démographiques, septembre 2019 

36 

0.160.1650.170.1750.180.1850.190.1950.22004Q12004Q42005Q32006Q22007Q12007Q42008Q32009Q22010Q12010Q42011Q32012Q22013Q12013Q42014Q32015Q22016Q12016Q42017Q3Dispersion level 
                                                           
  
                                                           
total 

those 

being 

cognitive 

job  openings 

(high-skill) 
among 

Luxembourg is higher than EU average and has 
increased  significantly  over  the  last  decade. 
Almost  all  countries 
the  EU  recorded  a 
in 
significant increase in the average intensity of non-
tasks,  with 
routine 
Luxembourg 
having 
experienced  the  largest  increases  compared  to 
2000.  According  to  the  European  Centre  for  the 
Development  of  Education  and  Vocational 
Training’s  skills  forecasts(56),  the  overwhelming 
majority  of 
(including 
replacements  for  vacated  jobs)  till  2030  will  be 
split  evenly  between  high-  and  medium-level 
qualification  requirements(57).  The  most  recent 
study  conducted  by  the  Luxembourg’s  industry 
federation 
industriels 
luxembourgeois)  in  the  field  of  information  and 
communication technologies emphasises that 69 % 
of  foreseen  job  openings  in  surveyed  companies 
will be newly created positions. It also points to an 
increase in the level of qualification required, with 
only  3 %  of  the  job  created  requiring  only  upper 
secondary  education  (level  3  of  the  International 
Standard  Classification  of  Education)(58).  Low-
skilled  and  vulnerable  job  seekers  are  particularly 
at risk in this changing labour market. 

(Fédération 

des 

for 

demand 

growing 

In  this  context  of  rapid  technological  change 
higher-level 
and 
qualifications,  better  anticipation  of  skills  and 
matching  with 
labour  market  needs  are 
essential to achieve inclusive growth. Due to the 
specificity  of  the  labour  market  in  Luxembourg 
with  its  high  level  of  cross-border  workers,  there 
are only a limited number of studies monitoring or 
anticipating  skills  needs  in  the  country,  many  of 
which  focus  on  specific  sectors.  Skills  needs 
anticipation  activities  rely  on  a  social  partnership 
approach involving representatives of business and 
employees. There is no established pattern to take 
into account skills needs anticipation in the policy-
making.  The  Luxembourg’s  industry  federation 
(Fédération  des  industriels  luxembourgeois)  and 
the Luxembourg bankers’ association (Association 

(56)  Offering  quantitative  projections  of  the  future  trends  in 
sector  of  economic  activity  and 

employment  by 
occupational group up to 2030. 

(57)  http://www.cedefop.europa.eu/en/events-and-

projects/projects/forecasting-skill-demand-and-
supply/skills-forecasts-main-results 

(58)  https://www.fedil.lu/wp-

content/uploads/2018/03/FE_TIC2018_BROCH_A4_web_
final.pdf 

3.3. Labour market, education and social policies 

des  banquiers  du  Luxembourg),  together  with  the 
Chamber of Commerce, the Ministry of Education, 
the  Ministry  of  Higher  Education  and  Research 
and the public employment service, have launched 
a  new  survey  on  skills  requested  by  businesses 
over the next two years in the field of information 
and communication technologies. This survey aims 
at  assessing  the  evolution  of  professions  and  skill 
levels  requested  in  this  area  to  improve  the 
orientation  of  young  people  and  adapt  vocational 
to  the  needs  of 
training  and  adult  learning 
businesses.  The  results  should  help 
improve 
academic and vocational orientation. 

The  Coalition  agreement  gives  particular 
attention  to  the  development  of  skills  among 
workers  and  unemployed  people.  It  focusses 
particularly  on  improving  orientation  of  young 
people,  employees  and  job  seekers,  introducing  a 
personal  training  account  and  training  vouchers 
allowing  all  employees  to  follow  a  free  basic 
training 
to  digitised 
facilitates  access 
professions.  The  government  also  committed  to 
promote  the  quality  of  life-long  learning.  To  this 
end,  it  intends  to  create  an  accreditation  agency. 
Social  dialogue 
is  a  key  component  of 
Luxembourg’s  social  model,  and  will  remain 
essential  for  reforms  in  the  field  of  life-long 
learning. 

that 

is  being 

A  smooth  functioning  of  the  labour  market  in 
Luxembourg 
is  key  for  maintaining  high 
economic growth and low unemployment rates. 
Labour  market  policies  have  played  an  important 
role  in  the  functioning  of  the  labour  market  in 
Luxembourg,  which 
increasingly 
challenged  by  changes  in  both  the  labour  supply 
and demand. During the crisis, active strategies in 
support of keeping workers in employment proved 
to  be  effective 
in  helping  achieve  a  quick 
economic  recovery,  despite  the  budgetary  costs 
associated  (Efstathiou,  2019) (59).  A  major  step 
forward was made by the government when active 
policies  previously  in  place,  were  combined  and 
reinforced  to  ensure  a  steady  supply  of  skilled 
workers.  This  gave  support  to  Luxembourg's 
growth  model,  based  on  a  strong  and  increasing 
demand 
high-skilled  workers.  Today 
Luxembourg  is  confronted  with  a  new  setting  in 
which strategies will continue playing a key role in 

for 

(59)  Efstathiou et al. J Labour Market Res (2019) 53:12 
https://doi.org/10.1186/s12651-019-0262-3 

37 

 
                                                           
 
                                                           
3.3. Labour market, education and social policies 

statistics  on 

represents  4.5%,  which  is  well  below  the  EU 
average  of  12.9%,  but  keeps  slightly  increasing 
from  3.2 %  in  2016  to  4.1 %  in  2018  (Eurostat  – 
living 
European 
conditions).  A  similar  trend  is  noticed  among  EU 
citizens living in Luxembourg. Overall, the single-
parent  households  with  children  (40.7 %)  and 
single women (31.6 %) are facing the highest risk 
of poverty.  

income  and 

sector 

important  burden  for 

The  housing 
is  an  amplifier  of 
inequalities. In 2018, the income inequalities rose 
by 2 percentage points compared to 2018 (the Gini 
coefficient  reaches  0.33)  (62).  Housing  costs 
represent  an 
the  most 
disadvantaged.  In  2017,  the  share  of  housing 
expenditures  in  disposable  income  of  the  20  % 
most  disadvantaged  households  (first 
income 
quintile) was 42 %, three times greater than that of 
the 20 % of the wealthiest households (14.5 %, last 
income  quintile)  (63).  For  low-income  households 
(first and second quintile), housing costs represent 
a  very  important  burden,  having  increased  faster 
than their disposable income, which may intensify 
households’  potential  financial  vulnerabilities  and 
represent one  of the  main sources of inequality in 
the  medium  term.  On  homelessness,  Luxembourg 
lacks 
of 
Luxembourg’s 
homelessness  is  based  on  the  European  Typology 
of  homelessness  and  housing  exclusion (64).  An 
evaluation  of  the  strategy  against  homelessness 
will take place in 2020/2021. 

definition 

data. 

deprivation.  It  is  based  on  13  items  (of  which  some  are 
common  to MD).  The  MSD  rate  is the  share  of  people  in 
the  total  population  lacking  (because  of  an  enforced  lack) 
at least 5 items out of the 13 MSD items (as opposed to 3 
or more out of 9 items for MD). 

(62)  STATEC, Rapport Travail et cohésion sociale, 2019. 
(63)  STATEC,  N°  18/2019  -  Le  logement,  amplificateur  des 
inégalités 
Luxembourg 
au 
https://statistiques.public.lu/fr/publications/series/regards/2
019/18-19-Logement-amplificateur-d_inegalites/index.html  
(64)  This  typology  (known  as  ETHOS)  was  developed  by  the 
European  Federation  of  National  Organisations  Working 
with 
transnational 
framework definition for policy and practice purposes.  

the  Homeless  (FEANTSA)  as  a 

and 

technological 

rapidly  changing 

ensuring  sustained  growth.  The  acceleration  of 
environmental 
digital, 
transformations  are 
labour 
demand  needs,  which  take  longer  to  be  fulfilled 
and  may  limit  economic  activity;  while  finding  a 
(suitable)  job  may  become  increasingly  difficult 
lacking the  skills  needed,  raising 
for  people 
exclusion (60). 
unemployment 
Meanwhile,  the  labour  force  is  also  changing, 
being  shaped  by  three  forces:  ageing,  education 
and  migration.  Understanding  how  all 
these 
changes  interact  in  Luxembourg  may  help  design 
more effective targeted policies, which are key for 
achieving  a  more  sustainable,  competitive  and 
inclusive growth path. 

social 

and 

3.3.2.  SOCIAL POLICIES 

Despite  some  negative  trends,  Luxembourg 
shows  relatively  good  social  outcomes.  The 
overall  risk  of  poverty  or  social  exclusion  has 
increased  in  2018  and  reached  the  EU  average 
(21.9%), 
the  UN 
in  movement  away  from 
Sustainable  Development  Goal  1  (No  poverty), 
mainly driven by an increase in the share of people 
living in households with very low  work intensity 
(up to 8.3 % in 2018 from 6.9 % in 2017). The risk 
of poverty or social exclusion decreased for young 
people  (16-24)  from  31.7 %  in  2017  to  31.1 %  in 
2018, remained stable for working age adults (25-
54)  at  20.4 %,  and  continued  increasing  for  the 
elderly  (beyond  65),  from  11.8 %  to  12.1  %.  The 
Social  Scoreboard  shows  that  social  transfers 
continue to have a strong, albeit decreasing, impact 
on  poverty  reduction  (33.5 %  in  2018).  Material 
in  Luxembourg 
and 

social  deprivation (61) 

(60)  Or taking jobs for which they are overqualified, increasing 
the 

inefficiencies 

frustration  among  workers  and 
production structure. 

in 

(61)  The  Material  and  Social  Deprivation  indicator  (MSD)  is 
the result of a revision of the material deprivation indicator 
(MD).  It  takes  into  consideration  a  broader  concept  of 
deprivation  as  it  also  includes  items  related  to  social 
the  MD  measured  only  material 
activities,  whereas 

38 

 
                                                           
                                                                                   
3.3. Labour market, education and social policies 

Box 3.3.2: < Monitoring performance in light of the European Pillar of Social Rights > 

The European Pillar of Social Rights is a compass  for a renewed  process of upward convergence towards 
better working and living conditions in the European Union. It sets out twenty essential principles and rights 
in  the  areas  of  equal  opportunities  and  access  to  the  labour  market;  fair  working  conditions;  and  social 
protection and inclusion.  

The  Social  Scoreboard  supporting  the  European  Pillar  of  Social  Rights  shows  that  Luxembourg 
performs  well  in  most  areas.  The  labour  market  in  Luxembourg  shows  good  results  with  a  low 
unemployment  rate  and  gender  employment  gap.  Luxembourg  performs  better  than  the  EU  average  in 
providing  access 
to  childcare  services. 
Although  there  are  signs  of  weakening  on 
income  inequality,  this  remains  at  a  level 
close to the EU average. The overall risk of 
poverty  or  social  exclusion  and  the  impact 
of  social  transfers  on  poverty  reduction 
remain close or better than in the EU.  

is 

facing  challenges 

Despite  good  overall 
labour  market 
performance,  important  skills  shortages 
have  recently  emerged  in  some  sectors. 
in 
Luxembourg 
providing  the  resident  workforce  with  the 
required  skills.  At  the  same  time,  the 
activity  rates  of  older  and  low-skilled 
workers are lagging behind. Inequalities of 
opportunities  are  present  among  pupils  in 
relation to their socioeconomic and migrant 
background. 

The  Amendment  to  the  Labour  Code  of 
the 1st of August 2019 intends to improve 
the  access  to  the  regular  labour  market 
of employees with disabilities or those in 
external  job  reclassification  (i.e.  those 
who  cannot  fulfil  any  more  their  last  job 
tasks for physical or health reasons, but do 
not  qualify  for  disability  benefits)  and  to 
help  them  stay  in  employment  through 
accompanying measures that may last up to 
2 years, under the guidance of an “inclusion 
in employment assistant”. This is a positive 
step 
the 
Convention  on  the  rights  of  persons  with 
disabilities and could have an impact on the 
employment rate of people with disabilities 
or  in  external  reclassification  (often  older 
workers).  

transposition  of 

towards 

the 

In-work  poverty  remains  a  growing  challenge. 
In 2018, it was 13.5 % against 9.2 % in the EU. It 
has  been  increasing  (by  3.6  percentage  points) 
since  2011  and  remains  above  the  EU  average. 
Most  at  risk  are  single-parent  families  (28.6 % 
2018)  and  single  persons  (22.3 %),  for  which  the 

country  ranks  among  the  worst  performers  in  the 
EU  (EU  averages  being  22.8 %  and  13.0 % 
respectively).  Moreover,  Luxembourg  still  ranks 
one  of  the  highest,  in  terms  of  in  work  poverty, 
among employees with a temporary job (33.0 % vs 
16.2  %  in  the  EU).  At  the  same  time,  the  gross 

39 

 
3.3. Labour market, education and social policies 

minimum wage has been increased by 2% in 2019 
(1.1%  of  this  increase  is  due  to  the  review  of  the 
minimum wage every two years). Furthermore, the 
budget  law  of  26  April  2019  introduced  a  tax 
credit  on  the  social  minimum  wage  paid  out 
monthly by the employer together with the earned 
salary, for monthly salaries up to €3,000 (full time 
equivalent). 

programs  for  people  close  to  the  employment 
market.  The  National  Office  for  Social  Inclusion 
(ONIS)  will  take  care  of  people  who  are  further 
away  from  the  labour  market  with  specific  social 
inclusion  measures.  The  evaluation  of  the  scheme 
is expected by 2021. 

3.3.3.  EDUCATION AND SKILLS 

in-work  poverty  gap 

People born outside the EU tend to face a social 
disadvantage.  The 
is 
particularly  high  for  non-EU  born  people  versus 
Luxembourg  natives  aged  25-54  (21.7  percentage 
points),  compared  to  the  EU  average  in  2018 
(12.5 pps).  Particularly  of  concern  is  in-work 
poverty  for non-EU born employees, at 28.1 % in 
2018, one of the highest in the EU (20.2 % for the 
EU).  Although  the  at-risk-of  poverty  rate  for 
children  whose  parents  are  citizens  of  a  non-EU 
country is far below the EU average, children with 
a  migrant  background  are  facing  linguistic  and 
integration  issues  that  have  an  impact  on  their 
educational  performance.  Among  non  EU-born 
young  people  aged  15-29,  19.1  %  are  under  the 
in  education,  employment  or 
category 
training’,  much  more  than  among  the  native-born 
(8.1 %). 

‘not 

is 
The  Revenu  d’inclusion  sociale  scheme 
expected  to  alleviate  poverty  and  foster  social 
and  professional  inclusion.  The  adequacy  of  the 
minimum income scheme in Luxembourg was one 
of the highest in the EU in 2017. The coverage was 
also  above  the  EU  average.  The  new  Revenu 
d’inclusion  sociale  scheme  introduced  in  January 
2019 is expected to further alleviate poverty, foster 
social  inclusion  and  active  participation  in  the 
labour  market.  It  focuses  on  children  and  single-
parent  families  and  seeks  to  activate  beneficiaries 
to  help 
into  employment. 
According to civil society actors, its real impact on 
poverty  will  actually  depend  largely  on  whether 
the new activation measures succeed in promoting 
active  inclusion  and  ensuring  transitions  towards 
employment.  Authorities 
in  charge  already 
simulated  the  effects  of  the  reform  in  terms  of 
income  and  the  fight  against  inactivity  traps  (65) 
(see  European  Commission,  2019,  section  3.3.1). 
2019  and  2020  are  years  of  transition  with  the 
challenge  of  profiling  beneficiaries  by  the  public 
employment  service  and  setting  up  activation 

them  gain  entry 

(65)  STATEC, Rapport Travail et cohésion sociale, 2018 

is  below 

Education  performance 
the  EU 
average  and  strongly  linked  to  socioeconomic 
status.  Luxembourg’s  average  performance,  as 
measured  in  the  Programme  for  International 
Student  Assessment,  was  lower  in  2018  than  in 
2015 and in 2012 in reading and science. However, 
it  remained  stable  in  mathematics.  The  share  of 
low achievers is well above the EU average in all 
three  areas  measured.  The 
impact  of  socio-
economic  status  on  performance  is  the  strongest 
among EU countries. These results need to be read 
in  a  context  of  an  increasingly  diverse  school 
population,  where  some  55%  of  15-year-old 
students  have  a  migrant  background.  Unlike  in 
other  countries,  students  born  abroad  perform 
better  than  students  born  in  Luxembourg  from 
parents  born  abroad.  Students  with  lower  socio-
economic  status  are  the  most  likely  to  fall  behind 
in  all  subjects  and  to  be  oriented  towards  the 
technical 
school.  The 
provision of free quality childcare should  work  to 
reduce these educational inequalities and facilitate 
the  early  familiarisation  with  at  least  two  of  the 
country’s  official 
to 
languages, 
foreigners. 

in  particular 

tracks  of 

secondary 

tracking 

and  2016, 

Educational 
is  particularly  rigid. 
Pupils  of  foreign  nationality  are  less  frequently 
oriented  towards  the  higher  tracks  of  secondary 
education.  Between  2006 
the 
proportions of pupils guided to the academic track 
the 
(enseignement  secondaire  classique)  and 
technical track (enseignement secondaire général) 
fell  steadily,  while  those  going  to  the  lowest, 
vocational  track  (voie  préparatoire)  increased 
from  6 %  to  15 %.  Pupils  with  lower  socio-
economic  status  and  foreign  nationality  are  the 
most likely to fall behind in all subjects and to be 
guided  towards  the  lower  tracks.  Changing  tracks 
is extremely rare (Klapproth et al., 2013). In 2017, 
the  orientation  process  was  reformed  to  give 
parents  a  say  in  the  decision.  Following  this, 
98.2%  of  orientation  decisions  were  in  line  with 

40 

 
                                                           
3.3. Labour market, education and social policies 

the  parents’  wishes,  whereas  previously  this  had 
been  the  case  with  84%.  This  may  explain  the 
trend  shift  in  2017/2018,  when  the  proportions  of 
pupils in the two higher tracks increased again and 
the  proportion  in  the  lowest  vocational  track 
dropped from 15% to 12.2%. Monitoring is needed 
to  determine  whether  pupils  with 
lower 
socio‑ economic status are benefiting equally from 
this shift. 

Luxembourg’s  rate  of  early 
leavers  from 
education and training is significantly below the 
EU  average  but  national  surveys  indicate  a 
steady increase. The  early school-leaving rate, as 
measured  by  the  Labour  Force  Survey,  stood  at 
7.3 %  in  2017.  However,  this  data  should  be 
interpreted  with  caution  because  of  the  limited 
sample size in Luxembourg.  

to  close 

New  policy 
the 
initiatives  aim 
achievement  gaps  among  pupils  of  different 
backgrounds and to reduce early school leaving. 
A  2017  amendment  of 
the  Act  on  Youth 
established  national  quality  standards  in  early 
childhood  education  that  all  providers  had  to 
comply  with  by  September  2017.  The  Law  on 
secondary  education  of  2017  introduced  several 
measures  to  improve  school  quality  and better  
adapt    the    school    offer    to    the    needs    of    an 
increasingly diverse school population.   

Several  ongoing  measures  aim  to  improve 
vocational  education  and  training,  particularly 
to tackle grade repetition. In 2017, the proportion 
of  pupils  enrolled  in  upper  secondary  vocational 
education  and  training  programmes  was  61.6 %, 
against  an  EU  average  of  47.8 %.  Graduates  in 
vocational  education  and  training  enjoy  excellent 
prospects  with  an  employment  rate  of  95.4 % 
among  recent  vocational  education  and  training 
graduates,  well  above  the  EU  average  of  79.5% 
tertiary  graduates. 
that  for 
and  even  above 
However,  grade 
remains  a  major 
repetition 
challenge  in  technical  secondary  education.  In 
June 2019, the 2008 vocational training reform act 
was  amended  to  address  a  series  of  technical 

to 

issues,  including:  extending  the  length  of  the 
training  period 
improve  completion  rates, 
introducing a form of training for people already in 
the  contracts  for 
employment  and integrating 
apprenticeships and work placements in the labour 
law in order to improve legal certainty.  

has 

been 
cooperation 
Cross-border 
strengthened to ensure apprenticeship places. In 
March  2018,  Luxembourg  signed  a  bilateral 
agreement  with  the  German  Land  of  Rhineland-
Palatinate 
the  2017 
that  was  modelled  on 
agreement  with  the  Lorraine  region  in  France. 
Both  are  based  on  a  2014  framework  agreement 
aimed  at  boosting  cross-border  mobility 
in 
vocational  education  and  training  and  thereby 
strengthening  the  labour  market  in  the  Grande 
Région (i.e. Luxembourg and the bordering regions 
of  Belgium,  France  and  Germany).  In  September 
2018,  150  vocational  education  and 
training 
students  were  involved  in  apprenticeship  mobility 
across the Grande Région. 

The  attainment  rate  in  tertiary  education  for 
people  with  disabilities  is  lower  than  the  EU 
average  (22.8 %  against  the  EU  average  of 
32.4 %).  The  tertiary  education  attainment  gap 
between people with and without disabilities is the 
second  largest  in  the  EU  (30  percentage  points 
against an EU average of 10.2 percentage points).  
This could partly be due to the distorting impact of 
the  high  share  of  tertiary  educated  migrants  in 
the  United  Nations 
Luxembourg.  However, 
Committee  on 
the  Rights  of  Persons  with 
Disabilities  pointed  out  critically  in  2017  that  the 
education laws still allowed for the segregation of 
students  with  disabilities  and  issued  a  number  of 
recommendations(66).  Subsequently,  the  Law  Loi 
du  27  juin  2018  relative  à  l’organisation  de 
l’Université  du  Luxembourg 
to 
improve the inclusion rate of students with special 
needs in tertiary education. 

is  expected 

(66)  Committee  on  the  Rights  of  Persons  with  Disabilities 
(2017).  Concluding  observations  on  the  initial  report  of 
Luxembourg CRPD/C/LUX/CO/1. 

41 

 
                                                           
3.3. Labour market, education and social policies 

Box 3.3.3: Labour shortages and skills gaps in Luxembourg’s labour market in a 
multidimensional perspective 

Employers  in  Luxembourg  report  persistent  challenges  in  finding  the  right  skills 
profiles  to  fill  a  large  number  of  different  vacancies.  The  number  of  open  positions 
registered by employers at the national public employment service has increased by 30% 
between 2015 and 2018. Domestic SMEs find more difficulties to hire qualified workers 
who fall short for the level of demand. This is mainly due to competition with large firms 
and internationally oriented subsidiaries of foreign companies.  

In  general,  the  vast  majority  of  the  bottleneck  professions  in  Luxembourg  can  be 
classified  as  high  and  medium  skilled  profiles.  In  2019  the  ADEM  services  together 
with  employers  have  compiled  the  list  of  to  100  bottleneck  professions (1)  The  largest 
number of bottleneck occupations (32) is in the business support sector with a focus on 
highly  skilled  jobs,  and  on  ICT  in  particular.  There  are  16  bottleneck  occupations 
reported  in  the  installation  and  maintenance  sector  with  profiles  leaning  toward  high 
skilled and medium skilled jobs. Similarly, in industry (13) and construction (11) sectors, 
bottleneck  vacancies  tend  to  require  medium  level  of  qualifications  with  only  few  low 
skilled profiles in demand. In banking the study identified 7 bottleneck profiles, all with 
high skills. In the rest of the list, in particular, in hospitality, trade and personal services 
sectors there are present a number of low skills profiles. 

Luxembourg’s sustained economic growth and labour market dynamics attracted a 
large  number  of cross-border workers  over  the  last  decade, which  allowed  in  part 
addressing  the  labour  shortages  and  skills  gaps.  At  the  beginning  of  2018, 
Luxembourg employed around 188 000 cross-border workers residing in France, Belgium 
and Germany (according to the IGSS/CCSS, (Pigeron-Piroth, I. (2019)). The main sectors 
of  employment,  where  the  share  of  cross-border  worker  exceeds  50%,  include  the 
manufacturing industry (primarily at the metal production and the manufacture of metal 
products), trade, administrative and support services, construction, mining and quarrying, 
but  also  communication  and  scientific  activities  (with  a  focus  on  legal  and  accounting 
activities).  The  share  of  cross-border  workers  in  financial  sector  is  just  below  the  half 
(48.8%). On average, cross-border workers have a higher education compared to resident 
workers. 

The  main  sectors  of  cross-border  employment  largely  coincide  with  the  sectors 
reporting most labour shortages in Luxembourg. Without the use of the cross-border 
workforce, economic growth in these sectors would have been less strong. The University 
of  Greater  Region  (UniGR)  research  indicates  that  cross-border  workers  not  only 
contribute to alleviating labour shortages, but also bring a variety of skills and know-how, 
strengthening  those  present  in  Luxembourg.  However,  at  this  moment  the  cross-border 
flows may not be sufficient to fully alleviate the existing skills shortages. 

Trans-border  interdependencies  related  to  labour  force  flows  can  have  many 
impacts  throughout  the  Greater  Region,  including  in  such  areas  as  infrastructure, 
spatial  planning,  and  housing.  One  remarkable  finding  of  the  UniGR  study  is  that  in 
two  sectors  employment  leans  predominantly  towards  non-Luxembourg  nationals 
residing  in  Luxembourg  and  not  commuting  (more  than  50%).  These  sectors  are 
accommodation  and  food  service  activities  (hotels  and  restaurants)  and  services  to 

42 

 
3.3. Labour market, education and social policies 

households,  which  are  also  among  the  ones  reporting  higher  skills  shortages.  In  other 
sectors  reporting  shortages,  the  share  of  foreign  employees  residing  in  Luxembourg  is 
mainly above one quarter. 

Cross-border  flows  of  workers  have  an  impact  on  the  transport  systems  of  both 
Luxembourg  and  the  neighbouring  regions  (Gerber  et  al.  (2019)).  At  peak  hour, 
transport  conditions  for  cross-border  workers  may  become  challenging.  In  terms  of 
transportation  mode,  85%  of  cross-border  commuters  travel  by  private  car,  6%  by  bus 
and  9%  by  train. The  share  of train  users is  unevenly  distributed:  with  12%  among  the 
French  commuters,  3%  among  German  and  7%  among  Belgian.  Correspondingly, 
occupancy  rates  of  passenger  trains  at  peak  hour  are  close  to  100%  on  trains  entering 
from France, with free capacity available on trains entering from Belgium or Germany. 
Addressing  the  infrastructure  capacity  issues  in  terms  of  transporting  cross-border 
employees requires continued medium and long term planning. 

The challenges in filling skills gaps are not specific to Luxembourg, but also have a 
bearing  on  the  neighbouring  regions.  A  recent  study  by  Eurofound  and  JRC 
(Eurofound and JRC (2019)) provides some insights into general labour market shifts in 
Luxembourg's neighbouring regions: Belgium's Luxembourg province, France's Lorraine 
region,  Germany's  lands  Saarland  and  Rheinland-Pfalz.  Between  2002  and  2017,  the 
number  of  high  skilled  jobs  increased  in  all  of  Luxembourg’s  neighbouring  regions,  as 
well as employment in services sectors (2). As these trends are expected to continue in the 
future,  the  potential  of  the  Luxembourg's  neighbouring  regions  to  serve  as  a  source  of 
high skilled employees may weaken. There is, however, a possibility of some inflow of 
high-skilled  workers  from  further  away  regions  who could  decide  to  settle  down  in  the 
neighbouring regions in order to pursue their employment  in Luxembourg. 

Overall, addressing the challenge of labour shortages and skill gaps in Luxembourg 
would  benefit  from  a  multidimensional  approach  combining  effective  skills 
management  and  development  domestically  with  favourable  conditions  for 
attracting and retaining foreign talent. As more European regions start to face similar 
challenges, there is a scope for continued action in Luxembourg along a set of measures 
with  a  medium  and  long  term  perspective  in  all  of  the  following  areas:  education  and 
training, transport infrastructure, and housing.  

(1)  The list is based on the collection of the job vacancies declared to ADEM and in a second step validated and amended 
by the experts from sectoral  employer’s federations. All the vacancies for regular jobs were included. Vacancies for 
subsidised employment and vacancies declared by temporary work agencies were not taken into account. The available 
data  give  a  picture  about  the  number  of  bottleneck  occupations,  but  not  the  actual  numbers  of  difficult  to  fill 
workplaces. To be identified as a bottleneck, the job should have a vacancy created at least every month, the vacancies 
should remain unfilled for at least 53 days on average, and the total number of job seekers per vacancy should be less 
than 0.5 (or more than two vacancies per job seeker). 

(2)  Based on the EU-LFS data. 

43 

 
 
3.4. COMPETIVENESS AND INVESTMENT 

3.4.1.  PRODUCTIVITY AND ECONOMIC 

DIVERSIFICATION 

Overview 

Labour  productivity  in  Luxembourg  remains 
is 
broadly  stable  since  2010.  Luxembourg 
level 
characterised  by  a  high  productivity 
compared  to  other  European  economies,  which 
helps  to  maintain  the  high  levels  of  labour  costs. 
However,  labour  productivity  in  Luxembourg  is 
growing at a slower pace since 2010 comparing to 
its  neighbouring  countries  (see  Graph  3.4.1). 
While  the  level  of  productivity  in  manufacturing 
remained rather  stable in the  period 2016-2018, it 
fell  in  market  services.  This  negative  trend  is 
particularly observable in financial services, which 
represent  one  quarter  of  total  gross  value  added. 
The decline in labour productivity occurred on the 
back  of  the  negative  evolution  of  both  Capital 
Growth per Worker and Total Factor Productivity 
since 2007. 

Graph 3.4.1:  Labour productivity evolution (2010=100) 

Source: Eurostat 

important 

for  explaining 

The  role  of  domestic  and  foreign  services  is 
particularly 
the 
aggregate  competitiveness  in  Luxembourg.  The 
terms  of  activity  and 
share  of  services 
employment  in  Luxembourg  is  higher  than  in 
neighbouring 
services 
represented  69%  of  value  added  and 56%  of  total 
in  2018.  In  particular,  financial 
employment 

countries.  Market 

in 

services play a central role in the overall economy 
as  they  represent  a  quarter  of  the  country’s  GDP 
and  11.5%  of  total  employment.  Moreover,  the 
country’s intermediate use of market services in its 
total  production 
is  also  above  neighbouring 
countries, representing 56% of the  value  added of 
the  final  demand  produced  in  Luxembourg  (see 
graph  3.4.2),  and  it  has  been  increasing  in  recent 
years.  A  specific  characteristic  of  Luxembourg’s 
economy 
its  final 
that  services  used 
production  are  more  imported  than  domestically 
produced.  This  suggests  that  the  actual  cost-
competitiveness in  Luxembourg is affected by the 
respective  evolution  of  the  costs  of  its  foreign 
inputs,  which 
and 
are  mainly 
consequently,  characterised  across  most  of  the 
countries  by  higher  increases  in  their  unit  labour 
costs compared to manufacturing sectors. 

services 

in 

is 

by 

The  slowdown  in  productivity  can  be  also 
country-specific 
some 
explained 
characteristics.  Specific  potential 
to 
factors 
Luxembourg  include  a  number  of  microeconomic 
weaknesses,  including  low  R&D  activity  among 
firms compared to other EU countries, shortages of 
qualified workers (Section 3.3) and lower levels of 
digitisation  than  top  performers.(67)  In  parallel, 
capital per worker declined in recent years. 

Graph 3.4.2:  Share of services in final demand 

Source: European Commission 

(67)  Top performers include Finland, the Netherlands, Belgium, 

Denmark or Sweden. 

44 

80859095100105110115201020112012201320142015201620172018BEDEFRLU TotalLU Market ServicesLU Financial Services0%10%20%30%40%50%60%Domestic ServicesForeign Services 
 
  
  
 
                                                           
3.4. Competiveness and Investment 

Box 3.4.4: Investment challenges and reforms in Luxembourg 

Section 1. Macroeconomic perspective 

Productivity is high, reflecting the relative importance of an efficient financial sector. Economic growth has 
become increasingly dependent on a narrow base of goods and services and is sensitive to external shocks. 
Productivity gains from off-shoring have been significant and linked to Luxembourg’s integration to global 
value  chains,  which  may  contribute  to  widening  productivity  gaps  vis-à-vis  more  domestically-focussed 
sectors. The business investment to GDP ratio is among the lowest in the EU and remains below pre-crisis 
levels,  which  might  in  part  be  linked  to  some  domestic  challenges.  The  perceived  shortage  of  qualified 
workforce across sectors in Luxembourg and its bordering areas, mobility concerns and high housing prices 
are likely to weigh on the country’s attractiveness.   

Section 2. Assessment of barriers to investment and ongoing reforms 

Infrastructure bottlenecks and the lack of skilled labour remain the main barriers holding back investment in 
Luxembourg. More than 70 % of firms surveyed by the European Investment Bank in 2019 highlighted that 
the unavailability of skilled labour was a barrier to investment in Luxembourg.  

Selected barriers to investment and priority actions underway: 

1. Insufficient housing supply and inadequate transport infrastructure remain major barriers to investment. 
Investment  in  dwellings  is  constrained  by  the  lack  of  available  land,  among  other  due  to  insufficient 
incentives for landowners to build. A set of reforms planned by the authorities could improve the outlook for 
the  provision  of  housing  if  implemented.  Nevertheless,  the  gap  in  dwellings  investment  is  expected  to 
remain significant in view of the expected increase in population. This should continue to push the already 
high  prices  up,  which  might  weigh  negatively  on  the  attractiveness  of  working  in  Luxembourg,  and  exert 
upwards pressure on wages and commercial real estate.  
2.  The  public  investment  strategy  aims  to  promote  technologies  with  the  potential  to  support  a  broader 
digitalisation  of  the  economy.  In  contrast,  business  investment  and  innovation  remain  low  and  appear 
insufficient  to  significantly  stimulate  digital  economic  integration  and  productivity  growth.  The  lack  of 
attractiveness  of  the  R&I  environment,  including  the  disconnection  between  private  sector  R&I  and  the 
public research system, hampers investment in  business R&I. This is compounded by shortages of skilled 
workforce, which are increasingly perceived as an obstacle for R&I investment.  

45 

 
 
 
3.4. Competiveness and Investment 

The EU supports investment in Luxembourg also via the European Fund for Strategic Investments (EFSI). 
By December 2019 total financing under the EFSI amounted to EUR 119 million, intended to trigger EUR 
549 million in additional investments.  

The current experience with the EU financial instruments and the EFSI budgetary guarantee demonstrated a 
need  for  simplification,  streamlining  and  better  coordination  of  the  EU’s  investment  support  instruments 
during the next 2021-27 programming period. By the end of 2020, EFSI and other EU financial instruments 
will  come  under  the  roof  of  the  new  InvestEU  programme  that  promotes  a  more  coherent  approach  to 
financing EU policy objectives and increases the choice of policy implementation options and implementing 
partners  to  tackle  country  specific  market  failures  and  investment  gaps.  In  addition,  under  InvestEU, 
Member  States  can  set-up  a  national  compartment  by  allocating  up  to  5%  of  their  structural  funds  to 
underpin  additional  guarantee  instruments  supporting  the  financing  of  investments  with  a  higher  level  of 
local  specificities.  InvestEU  will  be  policy-driven  and  focus  on  four  main  areas,  all  relevant  for 
Luxembourg:  Sustainable  Infrastructure,  Research,  Innovation,  and  Digitisation,  Small  Businesses,  and 
Social Investment and Skills. 

Beyond  the  EIB  Group,  other  multilateral  financial  institutions  and  national  promotional  banks  may  have 
direct access to the Invest EU guarantee. At this stage, Luxembourg’s national promotional bank, the SNCI 
(Société Nationale de Crédit et d'Investissement), has not signalled its interest in participating to the scheme. 

Luxembourg relies on the SNCI to provide financial support to domestic firms for development investments, 
including  fixed  assets,  innovations  or  commercial  projects,  either  in  Luxembourg  or  abroad.  SNCI  grants 
transfer  loans  to  start-ups  and  SME’s  and  may  take  equity  positions,  either directly  or  in  association  with 
financial partners or its subsidiary, CD-PME S.A.  

of 

digital 

investments 

Despite  the  high  productivity  growth  potential 
of  Luxembourg's  environment,  technological 
and digital integration, and investment, remain 
low  in  the  business  sector.  Given  the  country's 
high  productivity  level  and  high  labour  intensity, 
increasing  productivity  would  rely  on  developing 
high  value  added  activities  driven  by  innovation 
the  high 
that  capitalise  on 
and 
potential 
and 
Luxembourg’s 
technological  environment.  Luxembourg's  digital 
infrastructure is well developed, as the country has 
been reported for displaying one of the most digital 
transformation  enabling  environments  in  the  EU 
(Country report 2019, European Commission). The 
government has stepped up efforts to implement its 
digital  integration  and  innovation  strategy.  This, 
however,  contrasts  with  low  levels  of  digital  and 
technological  integration  and  low  productivity 
growth  in  the  broad  business  sector,  which  also 
shows one of the lowest investment, including R&I 
(OECD  economic  surveys:  Luxembourg  2019, 
p.49,  Digital  Economy  and  Society  Index  2019; 
Investment  Survey  Luxembourg  2019), 
EIB 
among the  EU Member states. All this suggests a 
low  capacity  by  the  business  sector  to  capture 
productivity  gains  from  incremental  investments 
based  on  the  country's  digital  and  technological 
environment. 

in  order 

investment  and  improve 

Stimulating  private 
investment  may  help 
increase  productivity  growth  and  technological 
integration,  conducive  to  a  more  resilient  and 
sustainable  growth  path.  Identifying  bottlenecks 
and  disincentives  to  invest  might  help  increase 
technological 
private 
diffusion and innovation among firms. Substantial 
public  and  private  investments  are  likely  to  be 
in 
required 
the  digital 
to  succeed 
the  economy. 
transformation  and  diversify 
Maintaining  a  balanced,  attractive  and  enabling 
environment  will  also  be  key  in  the  transition. 
Perceived trade-offs from the economic, social and 
environmental  linkages  could  be  mitigated  by 
enhanced  coordination  among  different  policy 
areas  and  long-term  approaches  to  address  the 
country's  main  challenges; 
including  housing 
supply,  skills  development;  sustainable  mobility 
and intergenerational fairness (see Sections 3.1 and 
3.5). 

Digital economy  

While Luxembourg is among the EU leaders in 
connectivity  with  high  coverage  of  next-
generation  access  networks,  the  roll-out  of  5G 
in  Luxembourg  risks  being  delayed.    While 
assignments  of  the  700  MHz  and  3.6  GHz  bands 
the  decisions  on 
are  planned  for  mid-2020, 

46 

 
 
 
 
3.4. Competiveness and Investment 

set  up  to  boost  the  digitalisation  of  the  industry, 
addressed to companies of any type and size based 
in  Luxembourg.  Additionally,  the  Fifth  National 
Action  Plan  to  support  small  and  medium-sized 
enterprises,  which 
financial  support 
includes 
measures,  is  under  consultation  by  stakeholders 
and  its  approval  is  expected  for  the  first  half  of 
2020. 

The  adoption  of  enabling  technologies  such  as 
cloud,  big  data,  and  robotics  remains  a 
challenge.  More  than  one  third  of  enterprises  do 
not  invest  intensively  in  digital  technologies  and 
do  not  exploit  the  opportunities  of  digitalisation. 
Luxembourg’s  enterprises  scored  very  low  in  the 
digital  intensity index (38 %  vs 41  % in the EU). 
Small  and  medium-sized  enterprises  are  lagging 
behind big companies in e-commerce. In 2019, 9% 
(17.5%  in  the  EU)  of  small  and  medium-sized 
enterprises were selling online, against 19% (39% 
in  the  EU)  of  big  firms.  The  uptake  of  several 
enabling 
Luxembourg’s 
technologies 
enterprises is close to the EU average. 

by 

(Euro  HPC) 

is  a  member  of 

Luxembourg is committed to deploy new digital 
technologies and engage at European level. The 
the  Euro  High-
country 
Performance  Computing 
Joint 
Undertaking (71). It has also signed the Declaration 
of European Blockchain Partnership (72), as well as 
the  Declaration (73)  on  Cooperation  on  Artificial 
Intelligence.  The  government  announced 
in 
to  procure  a  national 
parallel 
supercomputer.  In  June  2019,  Luxembourg  was 
one of the eight sites selected to host the EuroHPC 
supercomputers (74). 
Luxembourg’s, 
“Meluxina”(75), will be connected to the EuroHPC 
network  and  used  for  research,  personalised 
medicine  and  e-health  projects,  but  also  to  meet 
the  needs  of  companies,  in  particular  small  and 
medium-sized enterprises and start-ups. 

intention 

its 

(71)  https://ec.europa.eu/digital-single-market/en/eurohpc-joint-

undertaking 

(72)  https://ec.europa.eu/digital-single-

market/en/news/european-countries-join-blockchain-
partnership 

(73)  https://ec.europa.eu/digital-single-market/en/news/eu-

member-states-sign-cooperate-artificial-intelligence 

(74)

https://meco.gouvernement.lu/fr/actualites.gouverne
ment+fr+actualites+toutes_actualites+communiques+2019
+06-juin+14-schneider-meluxina.html 

(75)  https://www.tradeandinvest.lu/news/luxembourg-
supercomputer-meluxina-will-support-digital-
transformation/ 

whether  or  not  to  conduct  an  open  (not  only 
addressed  to  potential  operators)  second  public 
consultation, on whether or not to hold an auction 
and  on  the  auction  design  have  yet  to  be  made. 
Meanwhile,  the  demand  for  fast  and  ultrafast 
broadband  services,  which  are  available  to  98% 
and 92% of households respectively, is increasing. 
Next-generation  access  networks  and  fibre  (ultra-
fast broadband) are available to 91 % and 37 % of 
households in rural areas, respectively. 

Luxembourg is among the high-performing EU 
Member  States  in  terms  of  Information  and 
Communication  Technologies  (ICT)  sector  (5.4 
% of GDP), but digital integration in the broad 
economy  remains  low.  Although  the  number  of 
ICT  companies  is  increasing,  the  number  of  ICT 
specialists  has  not  followed  the  same  pace  of 
growth, broadening the gap between labour supply 
and  demand  (and  with  a  significant  gender  gap 
(68)). Despite the higher potential of the ICT sector 
in Luxembourg compared to most EU countries as 
a  proportion  of  GDP,  business  digitalisation 
indicators  are  close  to  the  EU  average.  Indicators 
include:  the  share  of  enterprises  using  software 
packages  for  information  sharing  (40.6  %  against 
34.4  %  in  the  EU),  social  media  (29.3  %  against 
25.2 % in the EU), Big Data for their analyses (16 
% against 12 % in the EU) and cloud services (16 
%  against  18  %  in  the  EU).  The  Government 
expects  the  new  strategy  to  transition  to  a  data-
driven  economy (69)  will  help 
those 
readings in the medium term. 

improve 

Measures  have  been 
implemented  by  the 
government  to  promote  the  digitalisation  of 
small and medium-sized enterprises. As of 2016, 
several initiatives were implemented, including the 
Fourth  National  Action  Plan  to  support  small  and 
medium-sized  enterprises  and  the  ‘Fit4Digital’ 
programme, 
by 
Luxinnovation (70)  to  boost  the  use  of  digital 
solutions  within 
and  medium-sized 
small 
enterprises.  In  September  2019,  the  Luxembourg 
Digital  Innovation  Hub  (L-DIH),  a  platform  of 
industry  and  on-demand  solutions  providers,  was 

programme  managed 

a 

(68)  European  Commission 

(2019),  Women 
Scoreboard,https://ec.europa.eu/digital-single-
market/en/women-digital-scoreboard 

in  Digital 

(69)  https://gouvernement.lu/en/publications/rapport-etude-
analyse/minist-economie/intelligence-artificielle/data-
driven-innovation.html 

(70)  National Agency for Innovation 

47 

 
                                                           
                                                           
 
3.4. Competiveness and Investment 

and 

information 

The 
communication 
technologies  sector  is  the  most  prominent  in 
terms of share of value added and employment. 
In the period 2008-2016, its share in the country's 
gross  value  added  has  increased  from  6.2%  to 
6.8%,  including  the  space  sector,  which  accounts 
for around 2% of GDP (Graph 3.4.3). In the same 
period,  paid  employment  grew  by  28%  while  the 
number  of  firms  increased  by  46%  to  2,266. 
Luxembourg has stepped up efforts to speed up the 
space  sector  development.  Luxembourg  is  one  of 
the  most  active  Member  states  of  the  European 
Space  Agency,  investing  in  programmes  of  space 
science, 
satellite 
navigation  and  Earth  observation.  Luxembourg  is 
trying  to  develop  a  unique  ecosystem  in  the 
domain  of  space  resources  for  the  commercial 
space  industry,  with  sustained  investment  topped 
up by EU funding. In 2020, Luxembourg launched 
the new National Action Plan on space 2020-2024. 

communications, 

satellite 

Graph 3.4.4:  Labour productivity growth in information and 

communication technologies (ICT) 

Source: Eurostat 

sector 

technologies 

Labour  productivity  in  the  information  and 
communication 
has 
improved  markedly  since  2014,  despite  a  drop 
in  2017.  Annual  productivity  growth  is  highly 
to  high 
(Graph  3.4.4)  and  subject 
volatile 
uncertainty  due  to  large  and  frequent  revisions, 
especially to the  most recent  data. Annual  growth 
has been driven by the highly volatile gross value 
added growth in the sector, coupled with the lower 
adjustment  pace  of  employment  in  recent  years 
(see  section  1).  In  cumulated  terms,  productivity 
has  increased  faster  in  the  period  2014-2018, 

Diversification of the economy  

The  government  continued  implementing  its 
strategy  to  diversify  the  economy,  but  business 
investment is among the lowest in the EU. Since 
2000,  the  Government  has  taken  a  number  of 
measures to support a multi-specialisation strategy 
focused  on  five  priority  sectors:  Information  and 
Communication  Technologies,  Logistics,  Space, 
Health  Technologies  and  Eco-technologies  (See 
Section 3.5). In spite of the efforts made the share 
of  the  five  priority  sectors  in  the  economy  total 
gross  value  added  remains  relatively  small.  In 
2016,  it  accounted  for  9.6%  of  gross  value  added 
and 7.8% of employment (76). The implementation 
of  the  recently  approved  data-driven  innovation 
strategy  is  expected  to  foster  the  development  of 
the 
business 
investment, in terms of GDP, has declined further 
and in 2018 it stood at 12.9% of GDP, among the 
lowest in the EU. The estimated contribution of the 
capital stock to real GDP growth shrank further in 
2018  and  was  set  at  1.1  percentage  points,  the 
lowest record in recent years. Business investment 
in  R&D,  at  0.68%  of  GDP  in  2018,  is  markedly 
low. 

sectors.  However, 

strategy 

Graph 3.4.3:  Evolution and composition of the GVA created 

by the ICT sector 

Share of the value added (GVA) in the economy 

9%

8%

7%

6%

5%

4%

3%

2%

1%

0%

7,1%  7,2%  7,3%  7,3% 

8,0% 

7,5% 

6,8% 

6,7% 

6,2% 

4,5%  5,1%  5,3%  5,6%  5,6% 

4,2% 

6,2% 

5,7% 

5,2% 

2,0%  2,2%  2,0%  1,9%  1,7%  1,7%  1,8%  1,8%  1,7% 

2008 2009 2010 2011 2012 2013 2014 2015 2016
ICT excluding space technologies
Space technologies

Source: Structural business statistics and RCSL. Calculations: 
Observatory for competitiveness. 

(76)  Observatory 

competitiveness 
(https://odc.gouvernement.lu/fr/publications/rapport-etude-
analyse/perspectives-politique-economique/perspectives-
politique-economique-34.html) 

for 

48 

-150153045607590-20-15-10-50510152000010203040506070809101112131415161718Real GVA p/hour (annual % growth rate)Real GVA p/hour (Cum. % growth rate) (rhs) 
 
                                                           
 
external 

around 8.3%, on average per year, compared with 
1.2% in the period 1995-2007, despite a sharp drop 
in  2017 (77).  This  upward 
trend  has  been 
concurrent  with  a  significant  increase  in  the 
sector's 
trade  participation,  which 
recorded  a  cumulated  increase  in  the  value  of 
exports  of  154% 
the  period  2014-2018. 
However,  the  net  external  contribution  of  the 
sector  to  GDP  growth  is  difficult  to  assess  due  to 
some  inconsistent  estimates  and  missing  data 
points at the sector level of disaggregation (78).  

in 

for 

Luxembourg's  logistics  sector  ranked  among 
in  the  World  Bank’s 
the  top  performers 
international 
logistics 
benchmark 
performance  (79).  With  a  score  of  4.22,  second 
after  Germany,  the  sector's  gross  value  added 
increased from € 0.8 billion in 2006 to € 1.4 billion 
in 2016, though its share in the gross value added 
has decreased from 2.7% in 2006 to 2.4% in 2016 
(Graph  3.4.5).  Employment  in  the  logistics  sector 
increased  from  11,589  people  in  2006  to  12,819 
people in 2016.  

Graph 3.4.5:  Evolution of the GVA created by the logistics 

sector 

3.4. Competiveness and Investment 

2019” (80),  health  sciences  companies  generated 
EUR  175  million  in  added  value,  0.38%  of  the 
country’s  GDP,  with  approximately  1,600  jobs. 
Luxembourg  has  created  an  attractive  ecosystem 
for digital  health companies.  Measures adopted in 
support  of  the  sector  include  an  inter-ministerial 
monitoring  task  force,  new  funding  schemes,  the 
creation  of  a  quality  label  for  digital  health 
products  and  services,  a  digital  health  Living  Lab 
and  a  favourable  taxation.  Companies  producing 
eco-technologies accounted only for 0.2 % of gross 
value added created in 2016, still very low in terms 
of GDP (See Section 3.5). 

Research and Innovation   

lower 

investment 

expenditure 

The decline in labour productivity is concurrent 
with 
in  research  and 
development,  especially  in  the  private  sector. 
The  total  Research  and  Development  intensity  of 
Luxembourg has decreased over the last decade to 
1.21% of GDP (2018) and is far below the national 
target  of  2.3%.  From  2007  to  2013,  there  was  a 
rapid development of the public science base, only 
partially  compensating  the  significant  decrease  of 
and 
business 
Development. 
and 
Development  by 
and  medium-sized 
small 
enterprises decreased from 0.41% of GDP in 2007 
to  0.11%  in  2013.  From  2013  onwards,  public 
intensity (81)  has 
Research  and  Development 
stagnated  and  remains  20%  below  EU  average. 
and 
Luxembourg's 
Development  intensity  has  since  then  remained 
stable at around 0.68% of GDP (2018). Addressing 
these  challenges  would 
to  progress  on 
Sustainable Development Goal 9. 

Research 
In  particular,  Research 

Research 

business 

lead 

in 

Source: Structural business statistics 

Health  technology  firms  have  left  a  limited 
footprint  in  the  economy,  despite  some  public 
investments and initiatives to support start-ups. 
the  “Bilan  de  Competitivité 
According 

to 

(77)  This figure needs to be taken with caution given the large 
and  frequent  revisions  to  the  national  accounts  data, 
especially in this sector. 

(78)  As in the Input/Output tables by ESTAT. 
(79)https://lpi.worldbank.org/international/scorecard/radar/254/

C/LUX/2018/C/DEU/2018#chartarea 

the 

Despite 
efficiency  of  Luxembourg’s 
research  and  innovation  system,  cooperation 
between  public  research 
institutions  and 
the 
businesses  remain  a  challenge.  Despite 
quality  of  the  scientific  output  in  Luxembourg’s 
public  research  system,  which  is  among  the  most 
valued in the EU (82), several indicators point to its 

(80)  https://gouvernement.lu/dam-

assets/documents/actualites/2019/11-novembre/20-bilan-
competitivite/Bilan-Competitivite-2019.pdf 

(81)  Research and Development investment performance in the 

public sector as % of GDP 

(82)  Luxembourg  ranks  first  in  EU  for  international  co-
publication  within  the  top  10%  most  cited  scientific 
publications  worldwide  as  a  share  of  total  scientific 
publications  of  the  country  and  ranks  third  for  scientific 

49 

7668008178536738638008248609991,1491,1352.9%2.7%2.5%2.5%2.0%2.4%2.1%2.1%2.1%2.3%2.5%2.4%0200400600800100012000%1%2%3%4%5%6%050607080910111213141516GVA (in million EUR)Share of GVA in the economy 
 
                                                           
                                                           
relatively  weak  linkages  with  the  business  sector. 
For  instance,  concerning  the  volume  of  public 
Research  and  Development  funded  by  businesses 
(contract  research) (83),  Luxembourg  showed  one 
of  the  lowest  scores  in  the  EU  in  2016,  after 
having  decreased  since  2011.  Several  initiatives 
have  been  implemented  since  2016  to  foster 
the 
public-private  cooperation.  For 
Industrial  Partnership  Block  Grant (84)  established 
by the  Luxembourg National  Research Fund aims 
to  foster  cooperation  between  Luxembourg  based 
companies active in research and development and 
public  research  institutions  in  Luxembourg.  The 
JUMP  competitive  funding  programme (85)  was 
designed  to  help  bridge  the  technical  and  funding 
gap  between  research-driven  discoveries  and  their 
commercialisation/utilisation. However, the impact 
of  these  measures  has  not  been  monitored  or 
evaluated.  

instance, 

The scope and size of public support to business 
research  and  innovation  is  improving (86)  but 
remains relatively limited. The adoption in 2017 
of  a  law  to  promote  Research,  Development  and 
Innovation was followed by an increase in the total 
number  of  projects  supported  (+18%  in  2019),  as 
well  as  an  increase  in  the  average  budget  per 
project, from EUR 1.8 million in 2016 to EUR 3.6 
in  2019.  Luxinnovation  developed 
million 
programmes  to  support  innovation  in  small  and 
medium-sized  enterprises  such  as  Fit4Innovation 
and  Fit4Start  which  provide  coaching  and 
financing  for start-ups. The  numbers of small  and 
medium-sized  enterprises  benefitting  from  these 
initiatives  is  increasing  (+84%  for  the  FIT4 
programmes,  FIT4Digital  not  included)  but  the 
comparatively  higher  administrative  burden  they 
entail  for  the  limited  resources  of  small  firms  is 
hindering broader participation.  

publications of the country  within the top 10% most cited 
worldwide as a share of total scientific publications of the 
country 

(83)  As measured by public Research and Developmentfinanced 
by  business  enterprises,  either  as  %  of  GDP  or  of  total 
public Research and Developmentexpenditure. 

(84)  Programme by the National Research FundNR to foster the 
cooperation  between  Luxembourg  based  companies  active 
in  Research  and  Development  and  public  research 
institutions  in  Luxembourg;  results  published  on  the 
National Research Fund website 

(85)  Programme  by  the  National  Research  Fund  in  support  to 

knowledge transfer and innovation 

(86)  Support  to  business  Research  and  Development  from 

0.041% in GDP in 2009 to 0.054 of GDP in 2015 

3.4. Competiveness and Investment 

include 

initiatives 

Several  strategies  to  boost  productivity  and 
sustainable  development  and  boost  digital 
integration  across  the  economy  were  published 
in  2019.  The  Data-driven  Innovation  Strategy 
proposes  specific  measures  for  a  secure  and  data-
driven  economy.  Key 
the 
support of companies’ in-house innovation and of 
the  start-up  ecosystem.  This  strategy  is  closely 
linked  to  the  one  on  Artificial  Intelligence  as  it 
aligns  with  Luxembourg’s  digital  ambition  to 
become  a  data-driven  and  sustainable  economy. 
Furthermore,  the  national  priorities  for  public 
research  have  been  revised  and  adopted  by  the 
Luxembourg  government.  This  will  underpin  a 
national strategy for public research, to be in place 
by mid-2020. However, an integrated research and 
innovation strategy articulating how to deploy and 
synchronise actions across all the components and 
dimensions 
eco-system 
(including  business  Research  and  Innovation) 
towards  a  clear,  deliberate,  overarching  strategic 
direction 
the 
government. 

is  currently  not  planned  by 

innovation 

the 

of 

Business Environment   

Small 

Business 

The  reform  of  bankruptcy  has  been  pending 
approval  in  the  Parliament  for  more  than  2 
years. In this regard, Luxembourg remains among 
the  worst  performers  in  the  EU,  according  to  the 
2018/2019 
Act 
Factsheet (87).While  some  support  is  provided  to 
allow  for  a  second  chance,  the  fear  of  failure  in 
Luxembourg  is  among  the  highest  in  the  EU.  In 
2019,  a  reform  of  the  right  of  establishment  was 
introduced, which should reduce the administrative 
burden  for  entrepreneurs.  One  of 
the  main 
priorities  of  the  fifth  action  plan  for  small  and 
medium-sized  enterprises,  announced  in  February 
2019,  is  to  provide  honest  entrepreneurs  with  a 
second  chance.  Although  Luxembourg  is  taking 
steps in the direction of promoting second chance, 
there  is  still  significant  room  for  improvement  in 
this  area.  Luxembourg  is  among  the  few  Member 
States  which  have  not  developed  a  dedicated 
strategy  for  small  and  medium-sized  enterprises. 
The  development  of  such  a  strategy  might  be 
useful  to  clarify  the  framework  for  the  activity  of 

https://ec.europa.eu/docsroom/documents/38662/atta

chments/19/translations/en/renditions/native 

(87)

50 

 
                                                                                   
                                                           
 
3.4. Competiveness and Investment 

small 
Luxembourg.  

and  medium-sized 

enterprises 

in 

corresponding supervisory arrangements would be 
economically beneficial. 

3.4.2.  MARKET INTEGRATION AND INVESTMENT 

Retail  

QUALITY 

Professional services 

European 

Commission’s 

Restrictiveness in accounting, architecture, civil 
engineering  and 
legal  professional  services 
remains high compared with the OECD average 
and  the  EU  average,  according  to  the  OECD’s 
Product Market Regulation indicator (OECD, 2019 
and 
assessment 
(COM(2016) 820 final and SWD(2016) 436 final). 
In  2019,  Luxembourg  continued  its  efforts  to 
reduce  progressively  regulatory  restrictions  in  the 
business  services  sector,  mainly  by  pursuing  the 
reform of the professions of architect and engineer. 
Additional  reforms  to  further  reduce  outstanding 
restrictions  for  these  two  professions  have  been 
announced,  notably,  as  regards  the  wide  scope  of 
reserve  of  activities  for  architects.  Moreover,  the 
law (88) 
some 
simplified 
Omnibus 
administrative  procedures  by 
for 
horizontal  screening.  However,  there  are  still 
regulatory  barriers 
the  business  services 
sector (89),  which  restrict  market  competition  and 
in  particular  make 
foreign 
companies  providing  certain  business  services  to 
set  up  a  branch,  agency  or  an  office 
in 
Luxembourg.  

further 
allowing 

it  difficult 

for 

in 

lawyer 

the 
to 

restriction 
lawyers 

including 
exclusively 

The  profession  of 
is  particularly 
constrained  by  regulations (90).  Some  regulatory 
requirements, 
on 
and 
shareholding 
prohibition  of  multidisciplinary  activities  for  law 
firms,  limit  innovation,  competition  and  efficient 
allocation  of  resources.  Their  reassessment  by 
taking  into  account  the  proportionality  of  these 
restrictions  in  relation  to  the  independence  of  the 
profession, the quality of legal services and to the 

(88)  The  law  of  27  February  2018  on  interchange  fees  and 
amending  several  laws  relating  to  the  financial  sector,  the 
so-called “Omnibus Law”, published the 5th March 2018. 
(89)  European Commission’s assessment (COM(2016) 820 final 
and  SWD(2016)  436  final)  and  the  OECD  PMR  (OECD, 
2019). 

(90)  European Commission’s assessment (COM(2016) 820 final 
and  SWD(2016)  436  final)  and  the  OECD  PMR  (OECD, 
2019). 

In 

regarding 

restrictions 

the  OECD’s 

Recent  reforms  were  aimed  at  improving  the 
functioning  of  a  rather  restricted  retail  sector. 
According  to  the  retail  restrictiveness  indicator 
(European Commission, 2018), at the end of 2017, 
Luxembourg  had  some  of  the  most  restrictive 
regulations  for  retail  businesses  in  the  EU,  in 
particular 
for 
establishment (91). 
recently 
published  Product  Market  Regulation  Indicator 
(2018), Luxembourg scores above the average (92) 
on  establishment  and  the  level  of  operational 
positive 
restrictiveness. 
developments  took  place  in  the  meantime.  As 
regards 
special 
establishment, 
authorisation  procedure  for  large  retail  stores 
(more  than  400  square  metres)  has  been  repealed. 
Additionally,  to  support  digitalisation  in  the  retail 
sector, the initiative Letzshop.lu has been launched 
in 2018, as a platform for online sales that retailers 
in  Luxembourg  may  use  to  introduce  themselves 
and sell their products online. 

However, 

some 

retail 

the 

Territorial supply constraints are a concern for 
the  business  sector  in  Luxembourg.  Following 
Benelux  inquiries,  Luxembourg  is  monitoring 
developments related to the businesses concerns in 
Benelux  and  reporting  at  the  European  level. 
Territorial  supply  constraints  are  likely  to  have  a 
negative  impact  on  the  choice  of  products  and 
prices for consumers. According to Eurostat, food 
prices in Luxembourg are among the highest in the 
EU. 

3.4.3.  INTER -REGIONAL DIMENSION 

Luxembourg is at the cross-roads of the Grande 
Région.  Luxembourg  lies  at  the  heart  of  the 
Grande  Région,  which  gathers  five  regions  from 
four  countries  (Luxembourg,  Germany,  Belgium 
and  France).  This  political  organisation  aims  at 

(91)  A  European  retail  sector  fit  for 

the  21st  century 
COM(2018)  219  final  -  SWD(2018)  237  final  https://eur-
lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52018SC0236&from=
EN 

(92)  Measured  for  22  Member  States  which  are  OECD 

members 

51 

 
                                                           
                                                           
3.4. Competiveness and Investment 

policy  monitoring  remains  low.  The  legislative 
procedure and decisions are transparent and legally 
compliant,  scrutinised  by  the  parliament,  and 
accessible  to  the  public.  By  contrast,  strategic 
planning  is  unevenly  developed  and  implemented 
and  vertical  integration  is  lacking  in  key  areas. 
While  strategic  plans  for  the  sectors  of  the 
diversification  strategy  are  well  developed  and 
regularly  updated,  the  country  lacks  a  national 
strategic framework for research and development. 
The  recent  territorial  management  reforms  have 
improved  coherence  between  the  different  layers 
of  government,  without  achieving  full  vertical 
integration. 
impact 
assessments, structured monitoring and evaluations 
are  seldom  carried  out,  reducing  the  likelihood  of 
policies to produce the intended results. 

In  many  cases,  ex-ante 

the 

The  reliability  and  availability  of  statistics 
remain  a 
challenge,  beyond  undisclosed 
information, which hampers the effectiveness of 
the  policy  making.  Significant  revisions  and 
incomplete  data  series  (e.g.  housing  occupancy 
monthly)  reduce 
informative  content  of 
statistics. Policies aimed at enhancing productivity 
would  greatly  benefit  from  firm-level  analysis. 
However, the availability of micro-founded data in 
Luxembourg 
instance, 
identifying firm-level determinants of productivity, 
comparing  multinationals’  productivity  to  that  of 
domestic firms, or quantifying the role of financial 
frictions  on  firm-level  productivity  are  all  issues 
that  can  only  be  satisfactorily  studied  with  firm-
level  data.  The 
recently  created  National 
productivity Council may improve this situation.  

scarce.  For 

remains 

Accountability 

is 

subject 

to  participate 

The right to information of records held by the 
government 
to  a  number  of 
restrictions. This limits in practice the access to a 
broad range of public information by stakeholders, 
institutions,  which 
national  and 
international 
capacity 
their 
reduces 
and 
collaborate 
the  policy  process.  Several 
in 
institutions assess regularly the quality of access to 
data  and  public  reporting.  In  2018,  Luxembourg 
only notified two draft technical regulations under 
the  Single  Market  Transparency  Directive,  which 
this 
low.  Effective  participation 
is  very 
notification  mechanism  would  lead  to  a  more 
effective  prevention  of  barriers  to  trade  in  the 
Single Market. 

in 

fostering  cross-border  cooperation  in  a  region 
where  cross-border  mobility 
is  particularly 
important.  The  Grande  Région  also  promotes  a 
more  sustainable  way  of  life,  encourages  the 
development of health and social care services and 
supports research and innovation.  

a 

has 

developed 

on 
industry, 

The  Grande  Région  shares  Luxembourg’s 
priorities  as  regards  high  value-added  sectors. 
Luxembourg  scores  higher  (0.93)  than  any  other 
member  of  the  Grande  Région  in  the  Regional 
Competitiveness  Index.  Every  member  of  the 
smart-
Grande  Région 
in  Luxembourg 
specialisation  strategy,  which 
resources 
focuses  mainly 
management, 
and 
technologies. 
information  and  communications 
The share of employment in "high-tech" sectors is 
increasing across the area, reaching 4.2% of total e 
employment  in  Luxembourg  in  2018 (93).  Sectors 
information  and 
industry, 
such  as  health, 
communications 
technologies  and  sustainable 
management of resources are priorities for many of 
the  Grande  Région,  which 
the  members  of 
cross-border 
relevance 
underlines 
cooperation.  

sustainable 
eco-technologies 

the 

of 

Cooperation  at  interregional  and  national  level 
is  crucial  to  build  a  critical  mass  and  improve 
access  to  markets.  It  seems  particularly  relevant 
for  Luxembourg  to  continue  building  partnerships 
in research and innovation, notably by reinforcing 
cooperation  not  only  among  researchers  but  also 
between  academia  and  business.  In  this  context, 
the University of the  Grande Région is one of the 
most  integrated  academic  consortia,  which  offers 
19  cross-border  university  courses 
focussing 
chiefly  on  the  rational  use  of  resources,  cross-
border issues and biomedicine.   

3.4.4.  GOVERNANCE AND INSTITUTIONAL 

QUALITY 

Policy decision and planning 

The  central  government's  decision  making  is 
open and predictable in Luxembourg. However, 
sub-national  strategic  planning  prevails  and 

(93)  Eurostat 

https://ec.europa.eu/eurostat/cache/RCI/#?vis=nuts2.scitech
&lang=en 

52 

 
                                                           
3.4. Competiveness and Investment 

Service delivery  

The  country’s  performance  in  digital  public 
services has been improving faster than the EU 
average  over  the  last  few  years.  Luxembourg 
ranks close to the EU average (59.3 against 62.9 in 
the  EU)  in  digital  public  services  (e-government 
and e-health). 55% of people submit official forms 
to administrative authorities electronically (the EU 
average  is  at  64  %).  Luxembourg  scores  close  to 
the  average  in  the  provision  of  digital  public 
services  for  businesses.  Luxembourg  performs 
well  above  the  EU  average  (76  %  against  64  %) 
the  maturity  of  Open  Data.  The 
regarding 
businesses 
the 
opportunities  that  opening  data  to  the  public 
provides.  The  Ministry  of  Digitalisation  was 
created  in  2018,  following  the  last  elections, 
supporting digitalisation of public services. 

citizens 

exploit 

and 

can 

Trust 

effectively 

implemented 

the 
Luxembourg 
regulation  regarding  Electronic  Identification, 
Authentification 
Services 
and 
(eIDAS) (94).  The  country  is  among  the  Member 
States who have notified their e-ID scheme. Since 
September  2018,  citizens  from  other  Member 
States  that  have  notified  their  home  country  e-ID 
scheme  can 
identity  on 
'MyGuichet'  using  their  own  national  e-IDs,  thus 
obviating the need to get a separate Luxembourg e-
ID.  In  March  2019,  the  Government  Council 
adopted the National Interoperability Framework – 
whose  governance  set-up  is  ongoing  –  which 
levels  of 
the  reaching  of  greater 
facilitates 
interoperability by public sector organisms. 

thus  prove 

their 

Public financial management 

Several  institutions  assess  regularly  the  quality 
of  public  finance  management.  For  instance  in 
the context of the Budget Framework; assessments 
are  published  the  Central  Bank  of  Luxembourg, 
the National Public Finance Council and the Court 
of  Auditors,  among  other.  Public  reporting  is 
improving 
further 
improvements are called for by these institutions. 

although 

area, 

this 

in 

(94)  https://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=uriserv:OJ.L_.2014.257.01. 

53 

 
                                                           
3.5.  ENVIRONMENTAL SUSTAINABILITY 

Despite  challenges  on  climate,  energy  and 
mobility,  the  green  transition  offers  growth 
opportunities.  Luxembourg,  one  of  the  EU’s 
highest greenhouse gas emitter per capita, needs to 
increase efforts to deliver on its climate and energy 
objectives.  Although  the  just  transition  of  some 
specific  industrial  sectors  requires  attention,  its 
relatively benign financial situation and its service-
based  economy  make  it  less  vulnerable  to  costs 
and  likely  to  benefit  from  the  transition.  Road 
traffic  congestion  weighs  on  Luxembourg’s 
economy  and  environmental  sustainability.  The 
country is taking action towards a more sustainable 
mobility,  which  requires  significant  investments. 
The  country’s  large  financial  sector  can  benefit 
from  the  growing  sustainable  finance  market, 
while  eco-innovation  and  circular  economy 
policies  can  support 
the 
diversification of the economy. 

job  creation  and 

Climate and energy challenges 

The  impact  of  climate  change  on  temperatures 
and rainfall is expected to have consequences on 
various sectors of Luxembourg’s economy. The 
average  temperature  in  the  country  between  1981 
and 2010 was 1°C warmer than in the period 1961-
1990,  while  rainfalls  are  expected  to  increase  in 
winter  and  decrease  in  summer,  with  fewer  but 
more intense rainy summer events. Climate change 
is predicted to impact human health, water quality 
and  quantity,  and  to  have  consequences,  not  yet 
quantified,  on  various  sectors  of  the  economy, 
notably  agriculture  and  forestry  (Ministère  du 
Développement  Durable  et  des  Infrastructures, 
2018a  and  2018b).  This  is  likely  to  affect  the 
country’s 
disaster  management 
strategy(95).  The  costs  of  adaptation  measures  are 
not yet identified. The draft climate law (Projet de 
loi  relative  au  climat)  envisages  the  financing  of 
adaptation  measures  by  the  Climate  and  Energy 
Fund. 

crisis 

and 

Extreme  weather events caused €718 million of 
economic losses over the period 1980-2017, and 
are projected to increase. Luxembourg is the EU 
country where extreme weather events have caused 

(95)  The  national  strategy  on  adaptation  to  climate  change 
mentions  that  crisis  and  disaster  management  in  the 
country could have to deal with a changed fire potential, an 
impairment  of  the  transport  infrastructure,  a  threat  to  the 
security of supply related to energy and drinking water, and 
stronger effects of extreme events. 

some  of  the  highest  economic  loss  per  squared 
kilometre  (€  277,817),  per  capita  (€  1,627),  and 
percentage  of  insured  losses  (59%).  Prolonged 
periods  of  drought  or  heavy  floods  occurred  in 
recent  years  (e.g.  May  2016,  June  2018),  and 
climate simulations estimate that extreme flooding 
events  could  increase  by  19%  because  of  climate 
change  (Ministère  du  Développement  Durable  et 
des  Infrastructures,  2015).  A  higher  risk  of 
climate-related events could lead to an increase in 
insurance 
affecting 
disproportionately people on low income (96). 

potentially 

premiums, 

less 

is  now 

carbon-intensive 

Luxembourg  has  the  highest  greenhouse  gases 
emissions  per  capita  in  the  EU,  despite  a 
relatively 
economy. 
less  carbon-
Luxembourg’s  economy 
intensive  than  the  EU  average  (249  g  CO  2eq  per 
euro  of  GDP  in  2018  compared  to  303  g  CO  2eq 
per euro of GDP at EU level). However, in 2018, 
Luxembourg  remained  the  EU  country  with  the 
highest greenhouse gas emissions per capita (20.2 t 
CO2eq),  more  than  double  the  EU  average  (8.6  t 
CO2eq)  (European  Environment  Agency,  2019b 
(97)).  Transport  is  the  main  source  of  emissions 
(47%), 
reflecting  Luxembourg’s  position  as 
logistical  hub  and  the  impact  of  its  large  cross-
border commuting workforce. 

The  predominance  of 
the  services  sector 
reduces  the  economy’s  overall  exposure  to 
carbon-intensive sectors affected by the climate 
the 
and  energy  transition.  Emissions  from 
Emission  Trading  System’s  sectors,  including 
heavy industry, represented 15% of total emissions 
in 2017 (98), to be compared  with the EU level of 
40%.  This  makes  Luxembourg  the  EU  country 
with  the  lowest  percentage  of  emissions  from 
carbon-intensive  sectors.  The 
iron  and  steel 
industry,  which  was  the  engine  of  Luxembourg’s 
economy,  now  employs  7.7%  of  the  total  labour 
force, and industrial production accounts for 5.3% 
of 
total  value  added  (Grand  Duchy  of 
Luxembourg, 2019). 

the 

(96)  As the insurance sector has already warned (The Guardian, 

2019) 

(97)  Data  excluding  land  use,  land  use  change  and  forestry 

(LULUCF), but including international aviation. 

(98)  Freely  allocated  emissions  represented  84%  of  verified 
emissions  to  all  stationary  installations  in  2017;  this  ratio 
was 33% in aviation. 

54 

 
 
                                                           
                                                           
3.5. Environmental sustainability 

to 

jobs 

Luxembourg’s 

macroeconomic 
impact  of  planned  policies. 
Ambitious  climate  and  energy  policies  can 
contribute 
sustainable 
development  and  to  better  manage  the  adverse 
effects  of  climate  change.  They  could  provide 
opportunities 
through 
for  growth  and 
increased  productivity,  diversification  of  exports 
and  business  creation.  The  assessment  of  the 
impacts  of  compliance  with  the  Paris  Climate 
Agreement  (European  Commission,  2019,  and 
Eurofound,  2019)  shows  that  by  2030  it  might 
have  a  small  positive  effect  on  employment.  On 
the  other  hand,  the  transition’s  impact  on  energy 
costs  and  consequences  on  production  costs  and 
competitiveness  remain  to  be  assessed  in  more 
detail,  together  with  the  associated  mitigating 
measures. 

Luxembourg aims at climate neutrality by 2050, 
but  is  a  long  way  off  achieving  its  climate  and 
energy  objectives  for  2020  and  2030.  Based  on 
existing measures, the country is expected to miss 
its  targets  of  reducing  greenhouse  gas  emissions 
under  the  effort-sharing  legislation  in  2020  (20% 
reduction  compared  with  2005)  and  2030  (40%), 
with  a  gap  of  5  and  25  percentage  points, 
respectively.  Luxembourg  would  need  to  increase 
efforts  significantly  in  order  to  achieve  its  2020 
binding target for renewable energy and intends to 
bridge  the  gap,  through  agreements  for  statistical 
transfers  of  renewable  energy  amounts,  under  the 
EU  cooperation  mechanisms  with  Lithuania  and 
(Renewable  Energy  Progress  Report 
Estonia 
European Commission, 2019). Luxembourg is also 
at  risk  of  not  fulfilling  its  obligations  to  increase 
energy  efficiency  by  2020.  While  energy 
consumption  has  dropped  in  the  industry  and 
household  sectors,  it  increased  by  11%  in  the 
services  sector  and  by  1%  in  the  transport  sector. 
Due to its location, Luxembourg already has a very 
high  level  of  electricity  interconnectivity  with 
other Member States, significantly above the EU’s 
objectives, and it is set to further increase by 2030. 

intends 

To  achieve  its  climate  and  energy  objectives, 
to  rollout  significant 
Luxembourg 
investments, but lacks a specific and quantified 
assessment  of  its  investment  needs.  In  2020, 
public environmental and climate investments will 
amount  to  more  than  EUR  500  million  and 
increase  to  EUR  661  million  in  2023  (Cour  des 
comptes, 2019).  

in 

The  industrial  sectors  most  impacted  by  the 
climate  and  energy 
transition  have  been 
identified  for  further  policy  action.  The  main 
industrial  emitters  are  the  cement  industry  in 
Rumelange  and  the  steel  industry  in  Esch-sur-
Alzette  (respectively  42%  and  27%  of  the  total 
industrial  greenhouse  gas  emissions 
the 
country).  The  three  most  energy-intensive  sectors 
are  special  cement,  steel  and  glass,  with  the  steel 
industry 
power 
consumption  in  the  country.  Luxembourg  intends 
to  engage  the  industry  with  voluntary  agreements 
on  reducing  energy  consumption  by  12%  in  12 
years. These sectors will require specific attention 
to ensure  a just transition, by promoting economic 
diversification  (see  section  3.4.1)  and  reskilling. 
Luxembourg  is  already  making  efforts  to  support 
the 
transition  of  previously  carbon-intensive 
regions – the Alzette-Belval region is an example. 

accounting 

40% 

for 

of 

the 

transition, 

it  could  focus 

The  Just  Transition  Fund  might  focus  on 
mitigating  the  impact  of  transition  for  the 
cement  and  steel  industries.  Given  their  highest 
emission  intensities  and  the  likely  socioeconomic 
its 
impact  of 
intervention  on  Rumelange  and  Esch-sur-Alzette. 
The Just Transition Fund could promote economic 
diversification,  reskilling  and  multi-specialisation, 
in  line  with  the  smart  specialisation  strategy 
(RIS3)  of  Luxembourg,  which 
the 
sectors  with  most  potential:  clean  &  eco-
technologies, health technologies, information and 
communication  technologies  and  digitalisation  of 
industry. The first three sectors have notably been 
the fastest growing in terms of employment in the 
country in 2008-2016.   

identifies 

to  keep 

Luxembourg  is  less  affected  by  energy  poverty 
than  other  EU  Member  States  (99).  2.1%  of 
households  were  unable 
the  home 
adequately warm in 2018, compared to 7.3% at the 
EU  level.  Energy  poverty  appears  more  prevalent 
in  households  that  rent  their  dwellings.  Energy 
poverty  is  primarily  addressed  through  social 
policy and  multiple programmes, including public 
information,  to  stimulate  energy  efficiency  and 
renewable energy in households.  

Luxembourg  could  benefit  from  the  transition, 
although  it  lacks  a  specific  assessment  of  the 

(99)  EU  Energy  Poverty  Observatory,  Luxembourg  data  & 

statistics factsheet, 20 June 2019 

55 

 
                                                           
3.5. Environmental sustainability 

Mobility challenges 

is 

for 

47 % 

Mobility 
issues  weigh  on  Luxembourg’s 
economy  and  environmental  sustainability. 
of 
responsible 
Transport 
Luxembourg’s  emissions  in  2016  (more  than 
double of the EU average of 21 %) (101). As such, 
improving the situation in the transport sector can 
significantly  contribute  to  Luxembourg’s  climate 
performance  (see  subsection  above),  but  also 
alleviate 
its  economy,  as  road 
congestion affects the country’s attractiveness and 
has social and economic spillovers.  

tensions  on 

Massive  and 
increasing  numbers  of  cross-
border  commuters,  strongly  relying  on  private 
cars,  contribute  to  road  traffic  congestion.  The 
demographic  development  in  Luxembourg  and  its 
pressure  on an insufficient and expensive housing 
market  result  in  increased  distances  to  work  for 
cross-border  workers,  who  represent  41  %  of 
Luxembourg's  labour  force  (see  section  3.3).  The 
car  remains  the  dominant  means  of  transport,  and 
the  country  has  the  highest  number  of  passenger 
vehicles  per  inhabitant  in  the  EU  (Eurostat, 
2019b).  Over  70 %  of  commuters  use  cars, 
compared  to  19 %  who  use  public  transport  (102), 
contributing  to  road  traffic  congestion  in  the 
Grande  Région  at  peak  hours.  Car  taxes  are 
particularly low in Luxembourg compared to other 
EU  countries  (Eunomia  et  al.,  2016).  In  addition, 
the low taxation on transport fuels in Luxembourg 
encourages  the  use  of  personal  cars.  The  taxation 
of  diesel  in  Luxembourg  remains  amongst  the 
lowest in the European Union. As a result, in 2015, 
non-residents  contributed  €  745  million  out  of  € 
871  million  (around  86 %)  of  total  fuel  excise 
revenues (Eunomia et al., 2016). 

the 

can 

quality, 

congestion  affects 

Traffic 
economy, 
including  through  time  losses  and  impacts  on 
damage 
air 
Luxembourg’s  attractiveness  and  productivity, 
and  may  have  social  impacts.  Luxembourg  is 
among  the  member  states  with  the  most  time  lost 
in road congestion (36.9 hours per capita in 2017, 
up  from  31.1  in  2014)  (European  Commission, 

eventually 

(101) Data  excluding  land  use,  land  use  change  and  forestry 

(LULUCF), but including international aviation. 

(102) https://transports.public.lu/dam-

assets/publications/contexte/situation-actuelle/20171207-
enquete-mobilite-luxmobil-2017-premiers-resultats-presse-
v2.pdf 

Luxembourg’s  National  Energy  and  Climate 
Plan for 2021-2030 will outline the scope of the 
envisaged  policy  response,  and  will  play  a  key 
role  to  assess  investment  needs.  The  National 
Energy and Climate Plan is still to be delivered by 
Luxembourg’s  authorities. 
its  June  2019 
recommendations,  the  Commission  recommended 
that in developing its final plan, Luxembourg take 
action  to  provide  a  comprehensive  assessment  of 
overall investment needs to achieve the objectives, 
as  well  as  information  on  the  financial  sources  to 
be  mobilised  for  implementation  of  the  existing 
and planned policies and measures.  

In 

To ensure that adequate investments are made, 
Luxembourg  will  need  to  ensure  that  effective 
price  signals  are  in  place  across  all  sectors, 
including  by  stepping  up  its  energy  taxation 
policy.  There  is  no  carbon  pricing  policy  in 
Luxembourg  beyond  the  EU’s  Emissions  Trading 
System. However, Luxembourg plans to introduce 
a  carbon  tax  from  2021  (see  Section  3.1.4). 
Schemes are in place to support renewable energy 
and  energy  efficiency  measures.  A  climate  bank 
that  offers  loans  at  reduced  interest  rates  for 
renovation  is  also  envisaged.  More  appropriate 
price signals appear necessary, as well as flanking 
measures  to  ensure  the  investment  decisions  are 
made also in cases where there is an extended time 
to  achieve  financial  return,  such  as  energy 
efficiency 
these 
schemes  on  the  government’s  budget  will  also 
need to be evaluated. 

investments.  The 

impact  of 

Renovations  in  the  building  sector  can  support 
economic  activity  while  reducing  emissions, 
energy  consumption  and  energy  poverty. 
Luxembourg  faces  the  challenges  of  having  to 
address  the  issue  of  insufficient  housing  supply 
and  maintaining  housing  affordable  (see  section 
3.2.3),  and  at  the  same  time  achieving  its  energy 
and  climate  targets  –  in  2016,  private  houses 
accounted for 12.6% of the country’s final energy 
demand  and  11.1%  of  its  total  greenhouse  gas 
emissions  (100).  Luxembourg’s  strategy  includes 
the  renovation  of  existing  buildings  focusing  on 
high  efficiency  and  the  construction  of  efficient 
new  buildings.  From  2012  to  2016,  building 
renovations employed 7,000 persons on average.  

(100) Source: draft National Energy and Climate Plan. Excluding 

land use, land use change and forestry. 

56 

 
                                                           
                                                           
3.5. Environmental sustainability 

of 

road 

infrastructures 

neighbouring  countries  aim  to  co-finance  the 
improvement 
and 
transportation  services  of  common  interest.  In  the 
framework of the Grande Région, prices for cross-
border  transportation  are  expected  to  be  reduced 
by German, French and Belgian network operators 
(Ministry  of  the  Economy,  2019b).  Nevertheless, 
inconsistencies  remain  (e.g.  Belgium  developed  a 
reserved  carpool  lane  in  2019  which  stops  at  the 
border with Luxembourg) as well as concerns, for 
instance  on  possible  border  effects  of  upcoming 
measures on free public transport in Luxembourg. 

countries. 

investments  are  underway 

Significant 
to 
improve the transport system, and in particular 
public transport. The Modu 2.0 strategy includes 
investments  in  rail  network  modernisation,  better 
cross-border  connections  and  new  multi-modal 
exchange  hubs,  involving  investment  with  the 
three 
2020, 
neighbouring 
investments  will 
environmental  and  climate 
amount to  more than € 500 million, of  which two 
thirds  will be in the field of  mobility or in  favour 
of public transport.  Until 2023, the government is 
expected to invest a total € 2.2 billion into the rail 
network  and  the  rail  operator  CFL  is  expected  to 
spend  €400  million  in  new  rail  rolling  stock  (107). 
In addition, € 380 million should be invested in the 
tram network. 

In 

Luxembourg  intends  to  incentivise  the  use  of 
electric  vehicles.  It  aims  to  develop  the  densest 
network  of  electric  charging  infrastructure  in  the 
EU  (Organisation  for  Economic  Co-operation  and 
Development,  2019).  Changes  to  the  subsidy 
scheme for electric vehicles in January 2019 aim to 
boost  the  purchase  of  electric  cars.  Cooperation 
with  the  Netherlands  and  Belgium  to  ensure 
Benelux  users  could  charge  their  electric  vehicles 
in any station belonging to the three networks may 
help to accelerate the development.  

Public transport (bus, tram, train) will be fully 
free of cost from 1 March 2020. The cost of the 
measure  for  the  public  budget  is  estimated  at 
around  €30  million  in  2020  and  €41  million  per 
year  in  years  after,  which  represents  only  around 
10%  of  the  total  cost  of  operating  the  network 
(State  Budget,  2020).  Whether  the  free  public 

(107) 

https://gouvernement.lu/fr/actualites/toutes_actualites/com
muniques/2019/01-janvier/21-bausch-transport.html. 

the 

last 

over 

Hours spent in road congestion annually). Despite 
improvements 
decades, 
Luxembourg’s  air  quality  continues  to  give  cause 
for  concern  (103)  and  has  consequences  on  public 
health and the environment as a whole (104). Short-
term  measures  to  cut  emissions  from  existing 
vehicles  have  been  identified  as  a  priority  (105). 
Traffic  congestion  can  damage  the  country’s 
attractiveness  and  productivity,  and  have  social 
spillovers,  as 
to  exacerbate 
it  contributes 
inequalities,  with  poorer  households  having  to  set 
aside  more  time  to  access  their  place  of  work.  A 
total  negative 
recent 
externalities of transport (including accidents (106), 
congestion,  air  pollution,  climate,  noise,  energy 
production,  and  habitat  damage)  in  Luxembourg 
reached 7.5% of GDP in 2016, which is the highest 
in  the  EU  (EU  average  is  5.7%)  (European 
Commission,  Handbook  on  the  external  costs  of 
transport, January 2019, p.128).  

estimated 

study 

the 

to 

to 
take  action 
Luxembourg  continues 
encourage  a  more 
sustainable  mobility, 
although  a  comprehensive  strategy articulating 
transport policies with other policies is lacking. 
Luxembourg’s  Sustainable  Mobility  Strategy, 
Modu  2.0  (see  European  Commission,  European 
Semester  country  report  for  Luxembourg,  2019), 
aims at reducing the economic and environmental 
impact  from  congestion,  while  transporting  20% 
more  people  by  2025  than  in  2017.  Additional 
measures were announced by the new government, 
but  the  current  approach  lacks  a  comprehensive 
vision  across  policy  areas  of  analysis  of  expected 
outcomes,  social  spillovers,  and  linkages  with 
housing  and 
issues  (reducing 
distances to work, developing teleworking).  

labour  market 

A  cross-border  approach  to  mobility  issues 
remains  essential.  Bilateral  agreements  with 

(103) In  2016,  2,500  years  of  life  were  lost  due  to  exposure  to 
fine  particulate  matter  (PM2.5).  In  2018, nitrogen  dioxide 
levels exceeding EU air quality standards were recorded in 
the  City  of  Luxembourg  (EEA,  Central  Data  Repository). 
Target levels of ozone concentrations were also exceeded. 
(104) EEA  Report  No  10/2019:  Air  quality  in  Europe  –  2019 

report 

(105) See  conclusions  of 

the  Air  Quality  Dialogue 

in 

Luxembourg in 2017, as well as the EIR 2019. 

(106) Road safety can be further improved in Luxembourg. The 
low  number  of  fatalities  does  not  allow  to  compare  with 
other Member States, but the high number of motorcycles 
and non-residents involved  in  accidents  requires  attention. 
Recommended  measures 
include  speed  cameras  and 
stricter law enforcement, which can be easily implemented.   

57 

 
                                                           
                                                           
3.5. Environmental sustainability 

than 

the  EU  average  on 

“SuperDrecksKëscht  fir  Betriber”  label  (111)),  and 
gave  a  strong  environmental  dimension  to  its 
Small  Business  Act  (112).  Luxembourg  performs 
resource 
better 
productivity, but the use of recycled materials has 
decreased and is now below the EU average. It will 
probably  comply  with  the  2020  municipal  waste 
recycling targets, but further efforts will be needed 
to  comply  with  post-2020  targets,  and  waste 
generation  per  capita  is  much  above  the  EU 
average (113). The lack of a comprehensive national 
strategy  on  circular  economy  is  addressed  in  the 
2018 national waste management plan (114) and the 
government  intends  to  start  drafting  a  dedicated 
strategy during 2020. All in all, Luxembourg is as 
regards  several  key  indicators  moving  away  from 
the objectives of SDG 12 (see also Annex E). 

(111) https://www.yde.lu/labels-clubs/labels/le-label-

superdreckskescht-fir-betriiber  

(112) European  Commission,  2018  SBA 

fact 

sheet 

- 

Luxembourg, p.12. 

(113) Directive  (EU)  2018/851,  Directive  (EU)  2018/852, 
Directive  (EU)  2018/850  and  Directive  (EU)  2018/849 
amend  the  previous  waste  legislation  and  will  set  more 
ambitious recycling targets for the period up to 2035. 

(114) Plan national de gestion des déchets. 

transport  will  have  the  expected  result  of  limiting 
or decreasing the use of the car remains uncertain. 
It will also largely depend on the offer of adequate 
public transport services.  

Luxembourg  intends  to  increase  excise  duties 
on  fuel.  This  reform  would  be  part  of  a  broader 
fiscal  reform.  Additional  revenues  generated  by 
increased  excise  duties  on  fuel  could  be  allocated 
to  the  Climate  and  Energy  fund  and  geared 
towards  the  financing  of  fossil  fuel  alternatives 
(see also section 3.1.4).  

Synergies to leverage for a greener economy 

Luxembourg’s large financial sector can benefit 
from  the  growing  sustainable  finance  market, 
while  supporting  the  environmental  transition 
(see section 3.2.5). The country has an opportunity 
to lead on climate finance, playing a key role at the 
international  level  to  foster  a  green  transition 
through  financial  instruments,  while  diversifying 
its financial sector.  

In  2018,  Luxembourg  ranked  first  within  the 
EU in terms of eco-innovation (108), up from 11th 
in  2012,  due  to  a  strong  political  support  of  the 
government.  Two  main  barriers  to  eco-innovation 
are  small  national  market  for  eco-innovations  and 
pressure  on  resources  due  to  the  need  to  balance 
environmental 
economic 
2018). 
protection 
its 
Luxembourg 
commitment  to  drive  industry  transition  to  a  low-
carbon economy by joining the “Leadership Group 
for  Industry  Transition”,  a  global  public-private 
initiative 
in  September  2019  (UN 
Department of Global Communications, 2019). 

development 
(European  Commission, 
recently 

confirmed 

launched 

and 

has 

Luxembourg is well advanced in the field of the 
circular  economy.  Building  on 
the  “Third 
Industrial  Revolution”  strategy  (109),  Luxembourg 
promotes  small  and  medium-sized  enterprises’ 
the 
to  a  circular  economy 
transition 
(110)  programme 
the 
“Fit4Circularity” 

(e.g. 
and 

(108) European  Commission,  Eco-innovation  Observatory:  Eco-

Innovation scoreboard 2018. 

(109) The  Ministry  of 

the  Economy,  “Third 

Industrial 

Revolution” strategy. 

(110) http://www.innovation.public.lu/fr/innover/pme-

artisanat/fit-for-circularity/index.html  

58 

 
                                                           
  
                                                           
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment (115)  

2019 country-specific recommendations (CSRs)  

by 

CSR  1:  Increase  the  employment  rate  of  older 
workers 
employment 
opportunities  and  employability.  Improve  the  long-
term  sustainability  of  the  pension  system,  including 
by further limiting early retirement.  

enhancing 

their 

Luxembourg  has  made  Limited  Progress 
addressing CSR 1  

in 

  Increase the employment rate of older workers by 
enhancing  their  employment  opportunities  and 
employability.  

above  60 

remain  very 

  Limited Progress Activity and employment rates 
low. 
of  people 
Luxembourg  has  one  of  the  highest  rates  of 
inactive  people  aged  60-64,  at  80.6  %  against 
53.1  %  on  EU  average,  but  the  situation  has 
for  workers  aged  55-59.  Some 
improved 
measures adopted in 2017 and 2018 may explain 
the  slight  increase  in  the  employment  rate  of 
older workers, but this rate  remains substantially 
below  the  EU  average  and  there  were  no  new 
measures  in  2019.  The  Age  Pact,  a  draft  law  on 
age  management  measures  intending  to  help 
keeping 
though 
senior  workers  at  work, 
introduced in 2014, is still pending in Parliament.  

  Improve 

the 

long-term  sustainability  of 

the 
pension  system,  including  by  further  limiting 
early retirement.  

  No  Progress.  No  evolution  since  2017.  The 
‘pré-retraite  de  solidarité’,  a  special  scheme 
allowing people to retire from the age of 57, was 
abrogated in 2018, but the impact of this on the 
average  effective 
retirement  age  and  on 
expenditure  is  still  difficult  to  assess  due  to  an 

(115) The  following  categories  are  used  to  assess  progress  in  implementing  the  country-specific  recommendations  (CSRs):  
No  progress:  The  Member  State  has  not  credibly  announced  nor  adopted  any  measures  to  address  the  CSR.  This  category 
covers a number of typical situations to be interpreted on a case by case basis taking into account country-specific conditions. 
They include the following:  

no legal, administrative, or budgetary measures have been announced  
in the national reform programme, 
in any other official communication to the national Parliament/relevant parliamentary committees or the European Commission, 
publicly (e.g. in a press statement or on the government's website); 
no non-legislative acts have been presented by the governing or legislative body; 
the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, it has 
not proposed any clearly-specified measure(s) to address the CSR. 

Limited progress: The Member State has:  
announced certain measures but these address the CSR only to a limited extent; and/or 
presented  legislative  acts  in  the  governing  or  legislative  body  but  these  have  not  been  adopted  yet  and  substantial  further,  non-

legislative work is needed before the CSR is implemented; 

presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 
Some progress: The Member State has adopted measures  
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to fully address the CSR fully as only a few of the measures have 
been implemented. For instance, a measure or measures have been adopted by the national Parliament or by ministerial decision 
but no implementing decisions are in place.  

Substantial progress: The Member State has adopted measures that go a long way towards addressing the CSR and most of them 

have been implemented.  

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately.  

59 

 
 
                                                           
 
A. Overview Table 

easing  of  restrictions  on  other  kinds  of  early 
retirement schemes. In 2018, the working group 
on  pensions  mandated  by  the  Government 
concluded that the pension system appears to be 
not  sustainable,  amid  high  uncertainty,  in  the 
long  term  projections  at  unchanged  policies. 
the 
the  2018  general  elections, 
Following 
the 
agreement  mentions 
coalition 
government  intends  to  submit  a  draft  law  on 
partial  retirement  (i.e.  a  combination  of  partial 
retirement  and  part-time  work) 
to  social 
partners.  

that 

CSR  2:  Reduce  barriers  to  competition  in  regulated 
professional business services.  

Luxembourg  has  made  Limited  Progress 
in 
addressing  CSR  2.  Regulatory  restrictions  remain 
above  EU  weighted  average  in  several  regulated 
professions (according to available indicators).  

CSR 3: Focus economic policy related to investment 
on fostering digitalisation and innovation, stimulating 
skills  development,  improving  sustainable  transport, 
and 
including  by 
increasing incentives and lifting barriers to build.  

increasing  housing 

supply, 

Luxembourg has made Some Progress in addressing 
CSR 3  

  Focus  economic  policy  related  to  investment  on 

fostering digitalisation  

  and innovation,  

  stimulating skills development,  

  Some  Progress  The  data-driven  innovation 
strategy  for  the  development  of  a  trusted  and 
sustainable  economy 
in  Luxembourg  was 
published  in  May  2019  and  actions  have  been 
implemented  to  promote  the  digitalisation  of 
small  and  medium-sized  enterprises.  However, 
digital integration in the broad economy remains 
low  and  despite  the  higher  potential  of  the 
Information  and  Communication  Technologies 
sector,  business  digitalisation 
indicators  are 
close to the EU average. 

in 

encourage 

  Some  Progress  Tax  measures  were  introduced 
to 
innovative 
investments 
companies  (adjustments  on  the  level  of  tax  law 
in 2018). Furthermore, Luxinnovation developed 
programmes to support innovation in Small and 
as 
Enterprises 
Medium-sized 
Fit4Innovation  and  Fit4Start  which  provides 
coaching and financing for start-ups.  

such 

  Some Progress 18 % of adults surveyed in 2018 
had  a  learning  experience  in  the  previous  four 
weeks, against an EU average of 11.1 % and for 
basic  and  advanced  digital  skills,  Luxembourg 
scores  highest  according  to  the  Digital  Agenda 
Scoreboard.  The  share  of  unemployed  adults 
participating in learning in Luxembourg in 2018 

60 

 
A. Overview Table 

bankers’ 

was one  of the  highest of the EU (almost 30 % 
against  10.7  %  on  EU  average).  Against  the 
background  of  possible  skills  mismatches  and 
labour shortages, the public employment service 
conducted  an  analysis  to  identify  the  needs  in 
cooperation  with 
the  Luxembourg  business 
association.  Luxembourg’s  industry  federation 
association, 
and  Luxembourg’s 
together  with  the  Chamber  of  Commerce,  the 
Ministry  of  Education,  the  Ministry  of  Higher 
Education  and  Research  and 
the  public 
employment  service,  also  launched  a  survey  on 
skills requested by businesses over the next two 
years 
information  and 
field  of 
communication  technologies  to  improve  the 
orientation of young people and adapt vocational 
training and adult learning to the needs. In June 
2019,  the  2008  vocational  training  reform  act 
was  amended  to  address  some  technical  issues. 
The Coalition agreement gives specific attention 
to the development of skills with several projects 
about  the  quality  of  life-long  learning,  the 
orientation of  young people, employees and job 
seekers,  the  introduction  of  a  personal  training 
account and training vouchers.  

the 

in 

 

improving sustainable transport,  

In 

line  with 

the  Strategy 

  Some  Progress  Significant  investments  have 
been realised and are to be continued to improve 
the  transport  system,  and  in  particular  public 
transport. 
for 
sustainable  mobility  (MoDu  2.0)  the  focus 
remains  on  a  well-functioning  multi-modal 
mobility.  Major  investments  took  place  on 
improving  the  railway  system,  including  cross-
border railway connections and the extension of 
the  Luxembourg  railway  station.  The  extension 
of the tramway in the Capital has been continued 
(phase B) and the installation of a public electric 
charging infrastructure is progressing. 

  and  increasing  housing  supply,  including  by 
increasing incentives and lifting barriers to build.  

to  previous  years.  Given 

  Limited  Progress  Housing  prices  continued  to 
increase  and  they  have  accelerated  in  2019, 
compared 
the 
fundamental  supply/demand  mismatch,  prices 
are  expected  to  increase  further.  Investment  in 
the  pace  of 
dwellings 
construction  of  new  dwellings  remains  only 
slightly above the annual average observed since 
2000.  Housing  supply  is  limited  by  insufficient 
incentives  to  extend  built-up  areas.  Regulations 
are  being  adapted  so  as  to  make  local  planning 
contracts  more  binding  on  landowners.  The 

low,  as 

remains 

61 

 
A. Overview Table 

recent 
territorial  management  reforms  have 
improved coherence between the different layers 
of government, yet without achieving the degree 
of  vertical  integration  that  would  be  needed  to 
significantly 
the  effectiveness  of 
national  policies  aiming  at  fostering  investment 
in dwellings in the country. 

improve 

CSR 4: Address features of the tax system that may 
facilitate  aggressive  tax  planning,  in  particular  by 
means of outbound payments.  

Luxembourg  has  made  Limited  Progress 
in 
addressing  CSR  4:  Beyond  implementing  EU  and 
internationally  agreed  initiatives,  Luxembourg  has 
not  yet  announced  concrete  reforms  to  address 
aggressive  tax  planning,  in  particular  by  means  of 
outbound payments. However, Luxembourg reported 
that  it  has  plans  to  address  the  issue  of  outbound 
payments with regard to jurisdictions included in the 
EU  list  of  non-cooperative  jurisdictions  for  tax 
purposes. 

Europe 2020 (national targets and progress)  

Employment  rate  target  set  in  the  National  Reform 
Programme: 73 % of population aged 20 to 64 

rate  of 

resident 
The  overall  employment 
population  continued 
increase,  from 
71.5% in 2017 to 72.1% in 2018, but it is still below 
both  its  Europe  2020  target  and  the  EU  average  of 
73.2%. 

to  slightly 

the 

 Research and development target set in the National 
Reform  Programme:  2.3%-2.6%  of  GDP,  of  which 
0.7% to 0.9% for public spending (1.6%-1.7% for the 
private sector) 

In  2018,  investment  in  research  and  development 
decreased  further  to  1.21%  of  GDP  and  reached  its 
lowest  point  compared  to  the  last  decade.  It  is 
therefore  far  below  its  national  target  of  2.3%  of 
GDP  (Eurostat)  and  the  EU  average  of  2.11%  of 
GDP. 

Business  enterprise  expenditure  in  research  and 
development  is  further  decreasing  (0.68%  of  GDP) 
compared  to  the  EU  average  of  1.41%  of  GDP  in 
2018.  Luxembourg    has  not  reached  its  2020  target 
for  public  expenditure  on  research  and  development 
(0.7% to 0.9%) which decreased slightly to 0.54% of 
GDP from 0.56% of GDP in 2017.   

National  greenhouse  gas  (GHG)  emissions  target:  
-  20%  in  2020  compared  with  2005  (in  sectors  not 
included in the EU emissions trading scheme)  

Preliminary  data  for  2018  shows  that  Luxembourg 
has  reduced  its  greenhouse  gas  emissions  by  10% 
relative to 2005 in the sectors not included in the EU 
emissions trading system. This is 6 percentage points 
below the annual emission allocation for that year (-
16%).  According  to  the  latest  national  projections 

62 

 
 
 
A. Overview Table 

submitted to the Commission and taking into account 
existing  measures,  it  is  expected  that  Luxembourg 
will  have  reduced  these  emissions  by  15%  in  2020 
compared  with  2005  –  the  2020  target  would  be 
missed  by  a  projected  shortfall  of  5  percentage 
points. 

2020 renewable energy target: 11%,  with a  share of 
renewable  energy  in  all  modes  of  transport  equal  to 
10% 

Preliminary data for 2018 indicates a strong increase 
from  6.3%  in  2017  to  9.1%,  which  means  that 
Luxembourg is on track to achieve its target in 2020. 
The  large  increase  is  mainly  due  to  two  statistical 
agreements, which added 2.2 percentage points to the 
renewable  energy  share.  However,  the  renewable 
energy  share  in  transport  share  remains  steady  at 
6.5%  compared  to  6.4%  in  2017.  The  share  in 
renewable  electricity  and  heating  and  cooling  have 
increased  by  1  percentage  point,  to  9.1%  and  8.8% 
respectively. 

Energy efficiency, 2020 energy consumption targets: 
Luxembourg’s  2020  energy  efficiency  target  is  4 
481,6  Mtoe 
energy 
consumption (4 239,2 Mtoe expressed in final energy 
consumption) 

expressed 

primary 

in 

The  latest  progress  report  based  on  2017  data  for 
energy consumption shows that Luxembourg met the 
indicative  energy  efficiency  target  both  in  final  and 
primary  energy  consumption,  with  a  final  energy 
consumption  of  4.2  Mtoe  and  a  primary  energy 
consumption  of  4.3  Mtoe  for  that  year.  However, 
both  final  and  primary  energy  consumption  rose  by 
3.5%  since  2016.  Preliminary  data  for  2018  shows 
further  increase  in  energy  consumption  to  levels 
higher than the 2020 target in both final and primary 
energy consumption. The achievement of the target is 
therefore uncertain. 

Early school/training leaving target: 9.5 % 

Early  school  leaving  stood  at  6.3 %  in  2018,  well 
below the EU average of 10.6 %. 

Tertiary  education  target:  50  %  of  population  aged 
17-33. 

The  rate  of  tertiary  attainment  reached  56.2 %  in 
2018,  well  above  the  EU  average  of  40.7 %,  but 
below the national target of 66 %. 

Target  for  reducing  the  number  of  people  at  risk  of 
poverty or social exclusion, expressed as an absolute 
number of people: -6000 (base year 2008) 

In  2018,  126  000  people  were  at  risk  of  poverty  or 
social exclusion, 54 000 more than in 2008. 

63 

 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS  

64 

LuxembourgGeneral Government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio21.019.619.218.616.514.713.211.810.59.48.57.87.3Changes in the ratio (-1+2+3)-1.3-1.4-0.4-0.5-2.1-1.8-1.5-1.4-1.3-1.1-0.9-0.7-0.5of which(1) Primary balance (1.1+1.2+1.3)3.02.61.71.71.51.31.11.00.90.80.70.50.3(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)2.31.91.01.11.21.11.11.00.90.80.70.50.3(1.1.1) Structural primary balance (bef. CoA)2.31.91.01.11.11.11.11.11.11.11.11.11.1(1.1.2) Cost of ageing0.00.10.30.40.60.81.01.21.5(1.1.3) Others (taxes and property incomes)0.10.10.20.30.40.40.50.60.6(1.2) Cyclical component0.70.70.60.60.40.20.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.00.00.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-0.9-0.7-0.6-0.6-0.5-0.5-0.4-0.4-0.3-0.3-0.3-0.2-0.2(2.1) Interest expenditure0.30.30.30.30.20.20.20.20.20.10.10.10.1(2.2) Growth effect-0.7-0.5-0.5-0.5-0.4-0.4-0.3-0.3-0.3-0.2-0.2-0.2-0.2(2.3) Inflation effect-0.5-0.4-0.4-0.4-0.4-0.3-0.3-0.3-0.2-0.2-0.2-0.2-0.2(3) Stock-flow adjustments2.51.91.81.70.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. c. For the long-term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps. of GDP. The DSA results are used to further qualify the long-term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). LU - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangeratesinsomecountries).Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections.Detailedinformationonthedesignoftheseprojections can be found in the FSR 2018 and the DSM 2019.[3] The second table presents the overall fiscal risk classification over the short, medium and long-term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. b. For the medium-term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained thereafter) to bring the debt-to-GDP ratio to 60 % by 2034. The critical values used are 0 and 2.5 pps. of GDP. The DSA classification is based on the results of 5 deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. 05101520253020172018201920202021202220232024202520262027202820292030Debt as % of GDP -LUBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario010203020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -LUp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline05101520253020172018201920202021202220232024202520262027202820292030Debt as % of GDP -LUBaselineHistorical SPB scenarioSGP scenario05101520253020172018201920202021202220232024202520262027202820292030Debt as % of GDP -LUBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryLOWLOWLOWLOWLOWLOWDebt level (2030)7.3-1.07.97.610.5Debt peak year20192019201920192019Percentile rank36.0%24.0%Probability debt higher14.0%Dif. between percentiles12.7Short termLOW(S0 = 0.2)DSALOWDebt sustainability analysis (detail)Medium termLOWLOW(S1 = -5.7)HIGHLong termHIGH(S2 = 8.6)S1S2 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2019. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2019. 
(3) Quarterly values are annualized. 
* Measured in basis points. 

Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

65 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)1932.51925.51925.61827.01793.91871.8Share of assets of the five largest banks (% of total assets)32.031.327.626.226.3-Foreign ownership of banking system (% of total assets)(2)88.487.987.886.887.087.1Financial soundness indicators:(2)              - non-performing loans (% of total loans)1.41.10.80.70.80.7              - capital adequacy ratio (%)19.620.924.322.521.420.2              - return on equity (%)(3)7.27.27.55.75.55.7Bank loans to the private sector (year-on-year % change)(1)3.25.48.06.64.24.8Lending for house purchase (year-on-year % change)(1)7.06.26.58.37.87.7Loan-to-deposit ratio(2)91.588.083.376.675.677.8Central bank liquidity as % of liabilities(1)0.50.60.70.90.80.6Private debt (% of GDP)324.9335.8309.0322.9306.5-Gross external debt (% of GDP)(2) - public10.29.08.210.39.38.9    - private5074.35647.35912.85464.15184.45036.2Long-term interest rate spread versus Bund (basis points)*17.3-12.716.522.616.913.7Credit default swap spreads for sovereign securities (5-year)*------ 
 
 
   
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2019 for the employment rate, unemployment rate and gender employment gap.       
Source: Eurostat 

66 

201420152016201720182019 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)6.19.35.57.36.3:Gender employment gap (pps)12.911.711.07.98.09.1Income inequality, measured as quintile share ratio (S80/S20)4.44.35.05.05.7:At-risk-of-poverty or social exclusion rate(1) (AROPE)19.018.519.821.521.9:Young people neither in employment nor in education and training (% of population aged 15-24)6.36.25.45.95.3:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)72.170.970.771.572.172.7Unemployment rate(2) (15-74 years)6.06.56.35.65.55.5Long-term unemployment rate (as % of active population)1.61.92.22.11.41.4Gross disposable income of households in real terms per capita(3) (Index 2008=100) 103.1102.5101.8104.8106.5:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)313673192232320:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)0.190.410.72:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)40.643.839.135.533.5:Children aged less than 3 years in formal childcare49.051.850.960.860.5:Self-reported unmet need for medical care0.80.90.40.30.3:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):86.086.085.0:: 
 
  
 
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores.       
(5) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted.       
Source: Eurostat, OECD 

67 

Labour market indicators201420152016201720182019 5Activity rate (15-64)70.870.970.070.271.171.9Employment in current job by durationFrom 0 to 11 months12.213.311.312.413.5:From 12 to 23 months8.69.010.110.611.1:From 24 to 59 months17.218.317.617.616.8:60 months or over60.656.958.056.654.6:Employment growth* (% change from previous year)2.62.63.03.43.73.7Employment rate of women(% of female population aged 20-64)65.565.065.167.568.068.1Employment rate of men (% of male population aged 20-64)78.476.776.175.476.077.2Employment rate of older workers* (% of population aged 55-64)42.538.439.639.840.542.8Part-time employment* (% of total employment, aged 15-64)18.418.419.219.517.716.8Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)8.110.29.09.19.89.3Transition rate from temporary to permanent employment(3-year average)34.534.334.233.134.2:Youth unemployment rate (% active population aged 15-24)22.316.619.115.514.113.8Gender gap in part-time employment30.928.128.729.426.124.6Gender pay gap(2) (in undadjusted form)5.45.55.55.0::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)14.518.016.817.218.0:Underachievement in education(3):25.8::::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)52.752.354.652.756.2:Variation in performance explained by students' socio-economic status(4):20.8:::: 
 
  
 
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

* Non-scoreboard indicator       
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.        
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation.       
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59.       
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard.       
Source: Eurostat, OECD 

68 

201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare5.85.65.45.15.4:Disability2.52.52.42.22.3:Old age and survivors8.58.38.48.28.5:Family/children3.63.53.43.23.3:Unemployment1.51.41.41.21.2:Housing0.30.30.30.30.4:Social exclusion n.e.c.0.50.50.50.50.5:Total22.722.121.820.921.5:of which: means-tested benefits0.80.80.80.80.9:General government expenditure by function (% of GDP)Social protection18.618.118.318.018.4:Health5.25.04.84.74.9:Education5.14.74.74.64.7:Out-of-pocket expenditure on healthcare11.111.010.610.510.7:Children at risk of poverty or social exclusion (% of people aged 0-17)*26.026.423.022.723.623.5At-risk-of-poverty  rate(1) (% of total population)15.916.415.316.518.718.3In-work at-risk-of-poverty rate (% of persons employed)11.211.111.612.013.713.5Severe material deprivation rate(2)  (% of total population)1.81.42.01.61.2:Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan0.60.60.40.91.80.9Tenant, rent at market price5.95.76.06.65.85.8Proportion of people living in low work intensity households(4) (% of people aged 0-59)6.66.15.76.66.98.3Poverty thresholds, expressed in national currency at constant prices*170431727017626168901801019689Healthy life yearsFemales10.610.88.78.08.5:Males10.911.310.79.59.0:Aggregate replacement ratio for pensions(5)0.80.90.80.90.90.9Connectivity dimension of the Digital Economy and Society Index (DESI)(6):62.671.074.478.8:GINI coefficient before taxes and transfers*50.348.548.147.349.2:GINI coefficient after taxes and transfers*30.428.728.531.030.9: 
 
  
 
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

Notes:       
1 Value added in constant prices divided by the number of persons employed.       
2 Compensation of employees in current prices divided by value added in constant prices.       
3 The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.        
4 Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if received 
75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the application is still 
pending or don't know.       
5 Percentage population aged 15-64 having completed tertiary education.       
6 Percentage population aged 20-24 having attained at least upper secondary education.       
7 Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
Please be aware that the indicator values from 2003 to 2013 are comparable, however the methodology has considerably 
changed in 2018 and therefore past vintages cannot be compared with the 2018 PMR indicators!       
8 Simple average of the indicators of regulation for lawyers, accountants, architects and engineers.       
9 Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).       

Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

69 

Performance indicators201320142015201620172018Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry16.34-5.6810.0810.78-1.020.35Labour productivity growth in construction0.7110.59-1.570.60-0.587.40Labour productivity growth in market services0.492.062.651.44-2.61-1.86Unit labour cost (ULC) index2 growth (t/t-1) in %ULC growth in industry-11.497.13-7.07-10.024.660.76ULC growth in construction0.65-3.052.22-0.023.17-3.85ULC growth in market services2.111.84-0.60-0.285.314.88Business environment201320142015201620172018Time needed to enforce contracts3 (days)321321321321321321Time needed to start a business3 (days)16.516.516.516.516.516.5Outcome of applications by SMEs for bank loans40.290.000.320.560.360.16Research and innovation201320142015201620172018R&D intensity1.301.261.271.261.271.21General government expenditure on education as % of GDP5.104.704.704.604.70:Employed people with tertiary education and/or people employed in science & technology as % of total employment384037373638Population having completed tertiary education5354035363438Young people with upper secondary education6777469777577Trade balance of high technology products as % of GDP-1.32-1.40-3.22-1.95-2.42-1.48Product and service markets and competition2003200820132018OECD product market regulation (PMR)7, overall1.601.441.461.72OECD PMR7, retail4.174.474.541.71OECD PMR7, professional services83.523.553.472.50OECD PMR7, network industries92.962.722.731.91 
 
  
 
 
 
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices)  
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)  
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)  
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)  
          Waste intensity: waste (in kg) divided by GDP (in EUR)  
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.   
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP.  
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change).  
Real unit energy cost: real energy costs as % of total value added for the economy.  
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR).  
Real unit energy costs for manufacturing industry excluding refining: real costs as % of value added for manufacturing sectors.  
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP.  
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000 -100 000 GJ; figures 
excl. VAT.  
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste.  
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP.  
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions.  
(excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency.  
Transport energy intensity: final energy consumption of transport activity including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR).  
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR).  
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels.  
Aggregated supplier concentration index: Herfindahl index covering oil, gas and coal. Smaller values indicate larger 
diversification and hence lower risk.  
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels. Smaller values indicate larger diversification.  
* European Commission and European Environment Agency - 2018 provisional data.  

Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators). 

70 

Green growth performance201320142015201620172018MacroeconomicEnergy intensity kgoe / €0.100.100.090.090.090.09Carbon intensity kg / €0.260.240.220.210.21-Resource intensity (reciprocal of resource productivity)kg / €0.270.270.290.290.280.29Waste intensity kg / €-0.16-0.21--Energy balance of trade % GDP-5.4-4.4-3.1-2.4-2.8-3.3Weighting of energy in HICP%14.8514.4812.3210.9311.6511.55Difference between energy price change and inflation p.p.-3.5-6.3-8.0-8.20.66.8Real unit of energy cost% of value added11.210.110.711.5--Ratio of environmental taxes to labour taxesratio0.100.100.110.110.11-Environmental taxes% GDP2.22.01.81.71.71.7Sectoral Industry energy intensity kgoe / € 0.140.140.130.120.110.11Real unit energy cost for manufacturing industry excl. refining% of value added46.339.641.844.2--Share of energy-intensive industries in the economy% GDP3.203.793.603.363.103.45Electricity prices for medium-sized industrial users€ / kWh0.100.100.090.090.080.08Gas prices for medium-sized industrial users€ / kWh0.050.040.040.030.030.03Public R&D for energy % GDP0.000.000.000.000.000.00Public R&D for environmental protection% GDP0.020.020.020.020.020.02Municipal waste recycling rate%46.647.747.448.250.450.1Share of GHG emissions covered by ETS*%16.517.916.215.014.613.9Transport energy intensitykgoe / €1.501.321.161.051.011.09Transport carbon intensitykg / €2.101.992.262.041.881.91Security of energy supplyEnergy import dependency%97.196.595.996.195.4-Aggregated supplier concentration indexHHI2.72.92.72.72.6-Diversification of energy mixHHI45.644.643.442.643.544.6 
 
  
 
 
ANNEX D: INVESTMENT GUIDANCE ON JUST TRANSITION FUND 

2021-2027 FOR LUXEMBOURG 

Building  on  the  Commission  proposal,  this  Annex (116)  preliminary  Commission  services’  views  on 
priority  investment  areas  and  framework  conditions  for  effective  delivery  for  the  2021-2027  Just 
Transition  Fund  investments  in  Luxembourg.  These  priority  investment  areas  are  derived  from  the 
broader  analysis  of  territories  facing  serious  socio-economic  challenges  deriving  from  the  transition 
process towards a climate-neutral economy of the Union by 2050 in Luxembourg, assessed in the report. 
This Annex provides the basis for a dialogue between Luxembourg and the Commission services as well 
as the relevant guidance for the  Member States in preparing their territorial just transition plans,  which 
will  form  the  basis  for  programming  the  Just  Transition  Fund.  The  Just  Transition  Fund  investments 
complement those under Cohesion Policy funding for which guidance in the form of Annex D was given 
in the 2019 Country Report for Luxembourg (117). 

The two main industrial emitters in Luxembourg are the cement industry in Rumelange (42 % of the total 
industrial GHG  emissions) and the  steel industry in Esch-sur-Alzette (27 % of the total  industrial GHG 
emissions). Overall, these two sectors employ some 4,000 people, mainly in the south of the country (118). 

Given their highest emission intensities and the likely socioeconomic impact of the transition, it appears 
warranted  that  the  Just  Transition  Fund  concentrates  its  intervention  on  these  areas.  The  smart 
specialisation strategies (119) provide an important framework to set priorities for innovation in support of 
economic 
to  promoting  economic 
diversification,  reskilling  and  multi-specialisation,  building-up  on  the  smart  specialisation  strategy  of 
Luxembourg,  which  identifies  the  sectors  with  most  potential:  clean  &  eco-technologies,  health 
technologies, ICT and digitalisation of industry (120).  

transformation.  The  Just  Transition  Fund  could  contribute 

In order to tackle these transition challenges, investment needs for alleviating the socio-economic costs of 
the transition have been identified. Key actions of the Just Transition Fund could  target in particular: 

• 

• 

• 

• 

productive  investments  in  SMEs,  including  start-ups,  leading  to  economic  diversification  and 
reconversion; 
investments  in  research  and  innovation  activities  and  fostering  the  transfer  of  advanced 
technologies; 
investments in the deployment of technology  and infrastructures for affordable clean energy, in 
greenhouse gas emission reduction, energy efficiency and renewable energy; 
upskilling and reskilling of workers. 

Some  industrial  sites  in  these  areas,  performing  activities  listed  in  Annex  I  to  Directive  2003/87/EC, 
employ  a  substantial  number  of  workers  and  their  activity  is  at  risk  due  to  their  high  greenhouse  gas 
emissions.  Support  to  investments  to  reduce  the  emissions  could  be  considered,  provided  that  they 
achieve a substantial reduction of emissions (going substantially below the relevant benchmarks used for 
free  allocation  under  Directive  2003/87/EC)  and  on  the  condition  that  the  investments  are  compatible 
with the European Green Deal. 

(116) This Annex is to be considered in conjunction with the EC proposal for a Regulation of the European Parliament and of the 
Council  on  the  Just  Transition  Fund  2021-2027  (COM(2020)22)  and  the  EC  proposal  for  a  Regulation  of  the  European 
Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European 
Social Fund Plus, the Cohesion Fund, and the European Maritime and Fisheries Fund and financial rules for those and for the 
Asylum and Migration Fund, the Internal Security Fund and the Border Management and Visa Instrument (COM(2020)23). 

Statec  2019.  https://statistiques.public.lu/catalogue-publications/principales-employeurs/2019/PDF-princip-entreprises-

(117) SWD(2019) 1015 final. 
(118) 
taille.pdf 
(119) As defined in Article 2(3) of Regulation No 1303/2013 (CPR) 
(120) https://s3platform.jrc.ec.europa.eu/regions/lu/tags/lu 

71 

 
 
 
                                                           
ANNEX E: PROGRESS TOWARDS THE SUSTAINABLE 

DEVELOPMENT GOALS (SDGS) 

Assessment of Luxembourg’s short-term progress towards the SDGs (121) 

Table  E.1  shows  the  data  for  Luxembourg  and  the  EU-28  for  the  indicators  included  in  the  EU  SDG 
indicator set used by Eurostat for  monitoring progress towards the SDGs in an EU context (122). As the 
short-term trend at EU-level is assessed over a 5-year period, both the value at the beginning of the period 
and  the  latest  available  value  is  presented.  The  indicators  are  regularly  updated  on  the  SDI  dedicated 
section of the Eurostat website.  

(121) Data  extracted  on  9  February  2020 
Table E.1: 

Indicators measuring Luxembourg’s progress towards the SDGs 

the  Eurostat  database 

from 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables).  

(122) The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

(Continued on the next page) 

72 

 
 
 
                                                           
 
  
 
References 

Table (continued) 

(Continued on the next page) 

73 

 
 
 
 
 
   
 
References 

Table (continued) 

(Continued on the next page) 

74 

 
 
 
 
 
   
 
References 

Table (continued) 

(Continued on the next page) 

75 

 
 
 
 
 
   
 
References 

Table (continued) 

Source: Eurostat 

76 

 
 
 
   
 
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80