An introduction to the Luxembourgish economy
As Carlo Thelen, the Chamber of Commerce’s CEO, said, “An open and dynamic country, Luxembourg has made its mark internationally as a reliable and innovative partner, providing an ideal environment for businesses and investors to thrive”. This couldn’t be more true, as Luxembourg, even though a really small country, due to its solid economy, constant growth and strategic position in the very center of Europe, attracts interest, investors and partners from all over the world. It is not by chance that year after year, more and more foreign entrepreneurs choose Luxembourg to open a new business or to move their business from somewhere else. It is because Luxembourg's economy has proven very stable and resilient and that is how Luxembourg became an international financial center, ranking among the top 10 of the best performing countries worldwide.
Luxembourg undeniably has a great quality of life, not just in Europe but statistically speaking, compared with other countries globally. It is proven that Luxembourg has the best monthly wages in the world and with its thriving economy makes it an attractive place to be, for both locals and expats. Of course salaries vary based on a number of factors, such as the industry someone works in, but nevertheless, Luxembourg has the highest minimum wage in the world. Subsequently, the cost of living obviously varies as well, in countries with such high wages as Luxembourg, but one thing you would need to take into consideration when thinking of relocating for work is also the quality of life you will be receiving by making such a move. It is quite expensive to live in Luxembourg, but the reward is to be taken into consideration.
Luxembourg City is at the very top of leading financial centers within the European Union. That means that many EU institutions and international organizations have a significant effect on Luxembourgish average wages, especially within the capital region.
Main economic sectors in Luxembourg and trading
So how does Luxembourg actually make money?
The biggest and strongest economic sector of Luxembourg is, and highly likely will remain for a while, the financial sector, covering almost 27% of the country’s GDP. It is not a surprise since Luxembourg is home to 136 banks including private banking, insurances and all kinds of investments. The Luxembourgish banking sector managed to maintain a stable growth while adapting to digitalization and diversity. But, it hasn’t always been the case, as up to the 1970s the leading economic sector was the steel industry, which does remain on the list. Other sectors are construction, energy, water and agriculture.
More in detail regarding the financial sector, we can mention that it includes investment companies, meaning brokers and agents, specialized services such as professional custodians of financial instruments, currency exchange agents and regulated market operators, and also communication and administration agents, IT system operators and other support staff of the sector. It is remarkable to mention here that non-banking operations are currently growing in Luxembourg due to the large outsourcing activity within the financial sector.
Besides the economic sectors though, Luxembourg highly relies on trading with other countries as well. The main countries Luxembourg is trading, either exporting or importing are Germany, Belgium, France and the Netherlands, with Italy and the USA lower down on the list. The main exported products of Luxembourg are iron and steel, road vehicles, other industrial machinery, and more manufacturing materials. On the other hand, they also import road vehicles, and then petrol products, medical products and electrical appliances.
GDP per capita in Luxembourg - Predictions for 2025
Why does Luxembourg have a high GDP? Luxembourg’s world ranking according to the World Bank last January, would be 85,5 billion USD, which puts Luxembourg in the 72th place worldwide. The reason behind it is the dynamic and competitive economy of Luxembourg and the labor market and political stability the country has to offer. Luxembourg’s GDP growth is expected to remain limited in 2025 as the country experienced a slowdown due to new government measures which underlined some economic uncertainty and weaker investments as well due to inflation prices. And of course, the recent pandemic still influences Luxembourg’s public finances and the European energy crisis as well.
Benefits of EU funding to Luxembourg’s economy in 2024
Even though Luxembourg is a wealthy country, of course it also benefits from EU budgets, funding and projects as well. The EU is practically assisting countries with bigger projects that they wouldn’t be able to afford by themselves and the extent of financial help is defined by the size, not of the country itself, but the country’s economy.
There are some basic benefits for all EU members, such as shared vision regarding immigration and environmental matters, as well as the same way of thinking when it comes to digitalisation within medical treatments, public services and road infrastructure. Much like in other EU countries, in Luxembourg, there are a number of on-going projects, funded by the EU, for example road building, which you can see here.
Economic overview - Capabilities and limitations of Luxembourg Economy
While the Luxembourgish economy is very strong, fast-growing, stable and resilient, rendering it very dynamic and competitive, therefore making Luxembourg an attractive place to live and do business, it does have some minuses worth mentioning. Due to the country’s small size and main focus on financial services, Luxembourg’s economy is not very diverse. Also, even though strong and stable, it still does highly depend on the Eurozone.
Even though, generally speaking, Luxembourg advances quite fast, since 2023, a small setback was noticed. Stricter financial conditions and less external demand put Luxembourg’s economy on hold with a decrease in investments. This pause seems that it will continue next year due to inflation and price augmentations within the EU. Still in the echo of the pandemic, Luxembourg’s revenue growth was affected, a fact that was partially regulated by higher income tax and social contributions.
The foreign talent impact on Luxembourg’s economy
Something very important to keep in mind regarding the Luxembourgish economy is that for the past more than 150 years it was moulded by different cultures and influences. The French, Portuguese, German and Italian communities in Luxembourg are the biggest ones at the moment and this cultural blend helps keep Luxembourg economically stable. Almost half of Luxembourg’s population have different nationalities than the Luxembourgish and there are also the cross-border workers who, even though don’t live in Luxembourg, contribute daily to its growth. On top of that, Luxembourg being trilingual by default, as Luxembourgish, German and French are its three official languages, brings communication to the next level, promoting its economy even more.
Initiatives for a better economy - The Luxembourg economy of tomorrow
Luxembourg’s economy will continue to grow as long as the country is the financial center that it is today. Luxembourg is the second biggest private banking center after the US and the most important one within the EU, which is great, but the government is now promoting and supporting development of other sectors too, such as IT, communication, logistics and biotechnologies.
