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Luxembourg Economic Snapshot

Going for Growth 2021 - Luxembourg

The recovery after the COVID-19 crisis requires a prompt labour market rebound and addressing skill shortages that weighed on firm growth and innovation prior to the crisis. Sustainable public infrastructure investment can improve environmental outcomes. Improving housing affordability and labour market participation of women will render the recovery more inclusive.

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2021 Structural Reform Priorities

  • Education and skills: Improve the education system to enhance skill matching in labour markets
  • Labour market: Facilitate labour market participation of women and older workers
  • Housing: Improve the functioning of the housing market
  • Environmental policy: Increase infrastructure investment to improve environmental outcomes
  • Competition and regulation: Increase competition in the non-financial services sector

 

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Economic Forecast Summary (December 2020)

After a 4.4% contraction in 2020, the economy is projected to expand by a moderate 1.5% in 2021 and by 3.8% in 2022. The introduction of lockdowns in neighbouring countries will significantly restrain exports in the fourth quarter of 2020, causing the economy to contract. GDP will start growing again in the first quarter of 2021. The recovery will gather pace in the following quarters on the back of more dynamic external demand and greater confidence of domestic consumers and firms due to a rollout of an effective vaccine. The unemployment rate is expected to peak at the beginning of 2021 at around 7.2% and to decline to 6.2% at the end of 2022. Risks to the projections are to the downside and include less favourable epidemiological developments, persistent labour market weakness, and increased distress in financial markets. On the upside, a faster disappearance of the pandemic, associated with efficient vaccine distribution, could lead to a stronger rebound in private consumption and investment.

Policy support should focus on valuable industries that are still affected by the downturn (such as transport, hotels and restaurants). Active labour market policies and training programmes should be extended to workers under job retention schemes (such as “chômage partiel”) to speed up job relocation if displacement occurs. A strengthening of labour activation policies should be envisaged in the light of the expected termination of job retention schemes in June 2021.

2019 Economic Survey of Luxembourg

Executive Summary

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