Luxembourg Economy Growing Strongly

Luxembourg’s economy will continue to grow strongly throughout 2017 and 2018, according to the economic forecast for the European Union published by the European Commission. 

The forecast gives a positive outlook for the EU as a whole, saying that, for the first time in almost a decade, the economies of all EU member states are expected to grow throughout the entire forecasting period, wort.lu reported.

The commission notes that its forecasts have been made in times of “higher-than-usual uncertainty”. Nevertheless, on the back of a “better-than-expected performance” in the second half of 2016 and a “robust start” into 2017, the forecast for 2017 has been revised to 1.6% for 2017 (up from 1.5%) and 1.8% for 2018 (up from 1.7%) compared with the autumn forecast.

In its country-specific forecast for Luxembourg, the commission predicts a “strong, broad-based growth” for Luxembourg, projecting GDP growth close to 4% throughout the forecast horizon. 

The recovery of oil prices will cause rising inflation, it said, while employment growth will remain solid, but unemployment is expected to decrease only marginally.

Mentioning the government’s recent tax reform, the commission believes public finances will remain sound even though the overall tax burden will decrease. The tax reform is expected to have a positive effect on private consumption as the disposable incomes of households should rise. 

Investment is also expected to receive a boost, in particular thanks to favorable lending conditions and investment plans by households and the public sector. Especially the execution of large public infrastructure projects and an improvement in equipment investment should have a positive impact, the commission said.

Job creation will continue to develop robustly, with a forecast growth of 3%, it said. Because non-residents are more likely to benefit from this development than residents, the unemployment rate will only be affected marginally, decreasing from 6.5% in 2015 to 6.2% in 2018, it said.

Headline inflation is predicted to rise again over 2017 and 2018 by 2.0% and 2.1%, respectively. 

The increase in headline inflation will then gradually push up core inflation, increasing to 1.6% in 2017 and 2.1% in 2018.

Luxembourg’s public finances remain sound, according to the commission, with the general government balance expected to post a surplus of 1.6% of GDP in 2016. The country’s debt-to-GDP ratio is projected at 21.0% in 2016, rising to 23.5% of GDP.