The following OECD assessment and recommendations summarise Chapter 1 of the Economic Survey of Luxembourg 2006 published on 5 July 2006.
After three years of relatively slow economic growth, the pace of activity has picked up, reaching 4.2% in 2004 and an estimated 4.0% in 2005. Although lower than growth rates observed at the end of the 1990s, economic growth remains well above the euro area average. External demand for financial services has strengthened on the back of the recovery in global equity markets since 2003, underpinning a large increase in the net exports’ contribution to growth. Net mutual fund assets increased by 60% in the two years to December 2005, with around 40% of this increase attributable to the rise in financial markets. While bank commissions have risen by 26% over this period, growth in overall bank revenue has been weaker (9%) owing to lower growth in other sources of income, notably interest rate margins. The EU Savings Directive, which introduced withholding taxes on interest income accruing to non-resident EU residents from July 2005, does not seem to have affected financial sector revenue, although it may have encouraged a switching of investments into equity funds.
Reflecting this upswing, domestic employment growth has picked up to 3.6% in the year to March 2006. These gains are almost exclusively attributable to hiring in the financial sector and in associated activities such as business services and real estate. Meanwhile employment in industry continues to decline. The inflow of cross-border workers remains high, accounting for almost 70% of new jobs created, and bringing their employment share to around 38%. Although the unemployment rate is still low compared with rates in neighbouring countries and regions, the number of job seekers has been on the rise continuously since the economic downturn in 2001. Part of this rise was due to administrative reasons as partially and fully disabled persons have been reclassified as being part of the labour force. Nevertheless, even abstracting from these administrative effects, the increase in unemployment was still substantial, reflecting, as discussed in Chapter 3, skill mismatches and high reservation wages.
Trend real GDP growth in Luxembourg and in neighbouring countries
1. Trend real GDP growth has been calculated by applying a Hodrick-Prescott filter with an adjustment parameter of 100 to annual GDP series extended beyond 2005 using the OECD Economic Outlook 79 projection for 2006-2012.
2. Average (not weighted) of Germany, France, the Netherlands and Belgium.
Source: OECD Economic Outlook No. 79.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
The complete edition of the Economic Survey of the Luxembourg 2006 is available from:
For further information please contact the Luxembourg Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by David Carey, Ekkehard Ernst and Stefaan Ide under the supervision of Patrick Lenain.