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Economy and Finance

Economic forecast for Luxembourg

The latest macroeconomic forecast for Luxembourg. 

Indicators 2023 2024 2025
GDP growth (%. yoy) -0.8 1.3 2.1
Inflation (%. yoy) 2.9 2.6 2.3

The economy of Luxembourg slowed down markedly in 2023, with GDP contracting in the second and third quarters. Overall, economic activity is estimated to have decreased by 0.8% in 2023, slightly more than expected in autumn, mainly affected by a contraction in financial services and in the construction sector. Private consumption, held up by lower inflation and government support measures, and public consumption, drove up domestic demand.

Economic activity is projected to recover in 2024, with GDP growth forecast at 1.3%. Private consumption is expected to be supported by receding inflationary pressures, rising wages, reduced personal income tax, the impact of the government’s support package Solidaritéitspak 3.0 and a moderate easing of financing conditions over the forecast horizon. In addition, consumers' confidence improved in the latest survey. Investment is expected to remain at relatively low levels as a result of the projected decline in activity in the construction sector, as also indicated by business surveys.  

In 2025, economic growth is set to pick up further, reaching 2.1%. Private consumption will continue to be supportive as energy and food prices are expected to further ease. In addition, looser financing conditions are projected to support the financial sector, thereby enhancing exports of services, and investment particularly in the construction sector, both contributing to higher growth.  These forecasts are broadly unchanged compared to the Autumn 2023 Forecast.

HICP inflation fell to 2.9% in 2023, mainly on the back of lower energy prices. In addition, even though three rounds of wage indexations were triggered, services’ price inflation registered a slowdown, reflecting the gratuity of some services such as school canteens, introduced in September 2022. Food and energy inflation are expected to continue decreasing over the forecast horizon, resulting in a deceleration of headline inflation. For both 2024 and 2025, one round of wage indexation is projected. Overall, HICP inflation is estimated at 2.6% in 2024 and 2.3% in 2025. Compared to autumn, this is revised down for 2024 but up for 2025. Inflation excluding energy and food is forecast to gradually decrease from its peak in 2023, albeit remaining above HICP inflation.