Launch of 2015 Economic Survey of Luxembourg


Remarks by Angel Gurría

Secretary-General, OECD


Friday, 27 March 2015

(As prepared for delivery)


Dear Minister, Ambassador, Ladies and Gentlemen,


I am delighted to be here to present the 2015 Economic Survey of Luxembourg. I would like to thank Ministers Gramegna and Schneider for having organised this event and Ambassador Dühr for his kind welcoming remarks. I would also like to thank the authorities in Luxembourg for their excellent cooperation during the preparation of the report.


It’s a pleasure for me to be able to open an Economic Survey speech with a truly positive message. I’ve launched many surveys throughout the OECD in difficult times. There haven’t been many other occasions over the last years where I could stand up and say: things are looking good!   



A prosperous open economy with a strong financial sector


Luxembourg is one of the most prosperous countries in the OECD. The economy, including its financial sector, has weathered the crisis well and growth has picked up, supported by sound macroeconomic policies. GDP per capita is the highest in the OECD and most wellbeing indicators, including health status and work-life balance, are significantly above the OECD average.*  Inequality of household disposable incomes is also relatively low by international comparison.


The financial and insurance sector is an important source of Luxembourg’s high incomes and employment. The value added share of this sector is about 27%, well above other OECD financial centres such as Switzerland or the United Kingdom (around 10½ and 8¼ per cent). Luxembourg is now the world’s second largest investment fund centre after the United States.


Luxembourg’s economy was quick to come back after the crisis, thanks to ­relatively high resilience of the financial sector and robust growth of IT and professional services. This success story is set to continue. Economic growth is likely to remain well above the euro area average. We have projected growth of 2¼ per cent in 2015 and more than 2½ per cent in 2016 in Luxembourg. In fact growth may well be even stronger.


These are significant achievements indeed, but as any country, Luxembourg also faces some important challenges.



Luxembourg is still facing important challenges


One of the central challenges is the fact that the economy still depends heavily on its financial sector. This creates potential vulnerabilities for output, employment and government revenues.


In an environment of rapid change and heightened global competition for financial services, Luxembourg has to stay competitive. It will have to maintain a highly qualified workforce and framework conditions that ensure financial stability. On top of this, changing financial market regulation in Europe reinforces the need to adjust.


Strong cross-border ownership and credit linkages of financial intermediaries are a key feature of Luxembourg’s financial sector. These can provide a certain degree of risk sharing in the case of adverse events, but they can also transmit external shocks into the domestic economy. Luxembourg needs to reassure investors that it can keep systemic risk at the minimum.


Our Survey also focusses on the key challenge of fostering growth in innovative industries other than the financial sector. Productivity growth has slowed to low levels, while structural unemployment has more than doubled since 2000, standing at around 6%. A more diversified economy could raise productivity and employment growth and reduce vulnerabilities.


Given the relatively high labour costs, Luxembourg’s future comparative advantages are likely to lie in higher value-added and skill-intensive activities. Yet, there is evidence that business investment in knowledge-based capital has been lower as a share of GDP than in many other OECD countries. Enterprise R&D spending declined from 1.4% of GDP in 2007 to 1% in 2012, widening the gap with the OECD and EU averages. Moreover, while the integration of financial services in global value added chains is the highest in the OECD, the available information suggests considerably lower integration in other knowledge-intensive services, such as transportation and telecommunications.


The OECD is committed to supporting Luxembourg as it addresses these challenges. I’d like to take you through some of the main recommendations in the 2015 Economic Survey to promote growth and wellbeing in Luxembourg.



Strengthening the financial sector and fostering diversification and innovation


To strengthen the performance and resilience of the financial sector, we recommend the authorities continue with a comprehensive approach to risk assessment that accounts for the various financial linkages between banks and other financial intermediaries such as investment funds. This will help protect the domestic economy from external shocks.


In the same vein, efforts need to continue to secure effective cross-border resolution of banks, including for non-European bank groups. To this end, the authorities should continue to cooperate with regulators in other jurisdictions outside the EU. It is also important to keep upgrading Luxembourg’s tax transparency regulations. This would increase incentives for banks to further refine their business models, benefitting Luxembourg’s financial sector in the medium term.


The Survey also makes recommendations to diversify the economy and foster more innovative growth. For example, the government has embarked on an ambitious enterprise cluster initiative, involving in particular R&D support and infrastructure investment in areas such a bio-health. Given the limited resources available, we recommend that efforts should be made to better evaluate the effectiveness of the programmes. The ongoing work to improve the data base on cluster participation is an important step in this direction. The initiative also needs to remain flexible and open to new business sectors.


A stronger collaboration of enterprises with public research institutions as well as a better performance of public research can also benefit SMEs. Cooperation has improved in recent years, as the governance of public research institutions has been strengthened. To further improve the performance of public research centres we recommend exploring closer co-operation with the University of Luxembourg and with research institutes based abroad. Further mergers of institutes should also be considered.


Policymakers will be able to follow up on this point in even greater detail when the forthcoming OECD Innovation Policy Review of Luxembourg is released in April.


For growth to be innovative, education policy has to be a priority. So we welcome the government’s policy initiative to improve the performance the education system, notably to raise the educational outcome of vulnerable groups. We recommend broadening the initiative to include reforms that have proven to be effective in other OECD countries, such as providing schools with more autonomy in choosing teachers and in budgetary matters.


Specifically, we also recommend reducing the costly and largely ineffective practice of grade repetition. Grade repetition gives Luxembourg the highest share in the OECD of students needing another two years on top of the regular time for high school completion.


As well as reforms to education, the OECD recommends that Luxembourg address hurdles to female labour force participation, which stands at less than 65% of the working age population, about 5 percentage points below the euro area average. This is a major drag on Luxembourg’s potential!


A number of provisions in the tax and transfer system discourage labour supply of second earners, which disproportionately affects women. Charging health care contributions for each spouse individually and introducing separate income tax assessment of spouses would go some way to reduce disincentives to spouses entering the labour market, or moving on to higher paid activities within it.


Minister, Ambassador, Ladies and Gentlemen, I would like to congratulate the Luxembourg government for its effective steering of the national economy through a very difficult period. Luxembourg is one of the great success stories of the OECD. Prospects are bright. But as the US President John F. Kennedy liked to say “the time to repair the roof is when the sun is shining”. Reform is a constant challenge, a state of mind. Luxembourg has to keep making the necessary policy repairs to remain competitive, to diversify the economy and to promote more innovative and inclusive growth.  


As always, the OECD stands ready to help you in this endeavour. Together, let’s design, deliver, and implement better policies for better lives in Luxembourg!


Thank you.




*GDP per capita in Luxembourg was USD 90 724 per capita in 2013 (