Economic outlook, analysis and forecasts

Luxembourg - Economic forecast summary (June 2016)


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Economic growth is projected to stay robust, at close to 4% in both 2016 and 2017, owing to strong domestic demand and exports of financial services. The next round of backward-looking wage indexation, which is expected in the first half of 2017, could boost inflation.

In order to meet its fiscal targets, the government should introduce a spending ceiling in its medium-term budgeting framework. Structural reforms should focus on increasing labour market inclusion by introducing separate income tax assessment of spouses, improving the availability of childcare and enhancing active labour market policies. Improved education outcomes would make growth more inclusive and raise productivity.

Trend productivity growth has been weak for several years. To bolster falling private R&D spending, policies that avoid favouring incumbents over entrants, such as immediate R&D expenditure refunds and the carry-forward of losses for tax deduction purposes, should be used. Product and labour market reforms that reduce barriers to labour mobility and skills mismatch, such as housing market and lifelong learning policies, should be used to facilitate the reallocation of resources from low to high-productivity firms.

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