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Luxembourg: Economy Overview

26 October 2009
by Ina Dimireva -- last modified 19 September 2013

Luxembourg's small, stable, high-income economy - benefiting from its proximity to France, Belgium, and Germany - has historically featured solid growth, low inflation, and low unemployment.


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Luxembourg's stable and high-income market economy features moderate growth, low inflation, and a high level of innovation. Unemployment is traditionally low, although it had risen to 6.1% by May 2012, due largely to the effect of the 2008 global financial crisis. Consequently, Luxembourg's economy is forecast to have negligible growth in 2012. In 2011, according to the IMF, Luxembourg was the second richest country in the world, with a per capita GDP on a purchasing-power parity (PPP) basis of $80,119. Luxembourg is ranked 13th in the Heritage Foundation's Index of Economic Freedom, 24th in the United Nations Human Development Index, and 4th in the Economist Intelligence Unit's quality of life index.

The industrial sector, which was dominated by steel until the 1960s, has since diversified to include chemicals, rubber, and other products. During the past decades, growth in the financial sector has more than compensated for the decline in steel production. Services, especially banking and finance, account for the majority of economic output. Luxembourg is the world's second largest investment fund centre (after the United States), the most important private banking centre in the eurozone and Europe's leading centre for reinsurance companies. Moreover, the Luxembourg government has aimed to attract internet start-ups, with Skype and Amazon being two of the many internet companies that have shifted their regional headquarters to Luxembourg.

In April 2009, concern about Luxembourg's banking secrecy laws, as well as its reputation as a tax haven, led to its being added to a "grey list" of nations with questionable banking arrangements by the G20. In response, the country soon after adopted OECD standards on exchange of information and was subsequently added into the category of 'jurisdictions that have substantially implemented the internationally agreed tax standard.' In March 2010, the Sunday Telegraph reported that most of Kim Jong-Il's $4bn in secret accounts is in Luxembourg banks. Amazon.co.uk also benefits from Luxembourg tax loop holes by channeling substantial UK revenues as reported by The Guardian in April 2012  Luxembourg ranked third on the Tax Justice Network's 2011 Financial Secrecy Index of the world's major tax havens, scoring only slightly behind the Cayman Islands.

Agriculture is based on small, family-owned farms.

Luxembourg has especially close trade and financial ties to Belgium and the Netherlands (see Benelux), and as a member of the EU it enjoys the advantages of the open European market.

With $147 billion (April 2013), the country ranks eleventh in the world in holdings of U.S. Treasury securities. The ranking is however imperfect as some foreign owners entrust the safekeeping of their securities to institutions that are neither in the United States nor in the owner's country of residence.

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