The economy rebounded quickly
House price inflation has been very high
Pension spending is set to rise rapidly
Fuel prices have been below those in neighbouring countries
Incomes remain high despite growth slowing down since the global financial crisis
Household income is high, but long-term unemployment and housing can improve
Growth is broad-based, and pressures are rising in the economy
Exposure to Russia’s oil and gas is negligible
Inflation is broad-based
War and rising inflation are depressing consumer confidence
Policy support is tilted towards non-targeted measures
Macro-financial vulnerabilities have increased in the asset and housing markets
The housing market continues to place households under pressure
The financial sector is in a strong position to respond to additional shocks
Perceptions of corruption are low
Debt levels remained contained despite a strong policy response to the COVID-19 crisis
Ageing is the largest long-term fiscal risk and cannot be solved with growth alone
Shocks are becoming more frequent – and can have a lasting impact on spending choices
Luxembourg’s pension outlays will see the fastest increase among EU countries
There is room to address key imbalances with a new pension reform
Labour demand will remain strong in Luxembourg
Low participation rates of older workers are limiting labour supply
A large share of workers that retire, do so well-before the age of 65
Net migration is the main contributor to population growth
Long-term unemployment affects older, low-skilled workers in particular
Despite strong growth, unemployment remains high for the young
Female participation rates outstrip the OECD average but remain below those of men
Luxembourg performs relatively well in terms of adult education and training
Productivity is high, but has flattened out for over a decade
Services contributed positively to labour productivity growth during the pandemic
Investment and spending on R&D have been falling steadily
Business investment intensity is low
Despite a high number of people working in knowledge intensive industries, few are dedicated to research
Small firms lag behind in adopting digital technologies
ICT investment is relatively low
Interaction with public authorities is relatively low, hindering efficiency gains
Luxembourg’s business regulatory environment is restrictive
Climate-related economic losses are relatively high
Emissions per capita are high although energy intensity is relatively low
The amount of waste generated surpasses the OECD average but air quality has improved
The natural environment is under pressure
Progress in reducing emissions has slowed since 2015, weakening growth decoupling
The transport sector accounts for most of the GHG emissions in Luxembourg
The supply of renewable energy is still one of the lowest among OECD countries
The 2030 and 2050 targets call for an acceleration in the pace of change
Stretching targets across households and firms
Growth both increases the resources for the transition and the required decrease in emissions
The sources of growth have been very labour intensive
The structure of Luxembourg’s economy insulates it from the highest risks of the green transition, but there are still risks
Increasing environmental policy stringency can reduce CO2 emissions
Sectoral changes in output, employment and investment vary
The employment impact could be mildly positive
Investments will rise, particularly in structures such as buildings and transport
The financial sector’s exposure to climate change is high
Changes in Environmental Policy Stringency over time in Luxembourg
Industry faces carbon costs in line with the OECD average thanks to the Emissions Trading Scheme
Pricing of emissions in the road sector is lower than in peer countries
There is substantial scope for higher environmental taxes
Uncertainty about regulations and taxes is an obstacle to green investment
International evidence suggests public support for a carbon tax is higher if revenues are used for environmental purposes
Luxembourg’s environmental regulations could be better designed
The transition in industry will require redoubling efforts
Growth in freight transport volumes has offset energy efficiency gains in the sector
Households’ high car reliance drives fuel consumption and emissions
Tram usage has increased steadily
Housing-related emissions have increased
Energy intensity of the residential sector in Luxembourg is high due to heating
There is some room to improve density of existing housing
Although the surface of protected areas increased, biodiversity has deteriorated
Methane emissions have been on the rise and overall emissions intensity is high