Luxemberg Economy



GDP (2006 est.): $32.6 billion (24.25 billion EUR)
Annual growth rate (2006 est.): 2.6%
Per capita income (2006 est.): $68,800.
Inflation rate (2006 est.): 2.6%.

Budget: Income .............. $19.07 billion
Expenditure ... $19.79 billion

Main Crops:
Barley, oats, potatoes, wheat, fruits, wine grapes; livestock products

Natural Resources: Iron ore (no longer exploited) .

Major Industries: banking, iron and steel, food processing, chemicals, metal products, engineering, tires, glass, aluminum


Although Luxembourg is aptly described as the "Green Heart of Europe" in tourist literature, its pastoral land coexists with a highly industrialized and export-intensive economy. Luxembourg enjoys a degree of economic prosperity almost unique among industrialized democracies.

In 1876, English metallurgist Sidney Thomas invented a refining process that led to the development of the steel industry in Luxembourg and the founding of the Arbed company in 1911. In 2001, Arbed merged with Aceralia and Usinor to form Arcelor, the world’s largest steel producer, which is headquartered in Luxembourg. The iron and steel industry, located along the French border, is the most important single sector of the economy. In 2002 steel accounted for 27% of all exports (excluding services), 30% of industrial employment, and 3.8% of the work force.

There has been, however, a relative decline in the steel sector, offset by Luxembourg's emergence as a financial center. The financial sector in 2002 made up more than 35% of Luxembourg’s gross domestic product. Banking is especially important. In 2003, there were 167 banks in Luxembourg, with 23,300 employees. Political stability, good communications, easy access to other European centers, skilled multilingual staff, and a tradition of banking secrecy have contributed to the growth of the financial sector. Germany accounts for the largest single grouping of banks, with Scandinavian, Japanese, and major U.S. banks also heavily represented. Total banking assets exceeded $650 billion at the end of 2002. Approximately 14,000 holding companies are established in Luxembourg.

Government policies promote the development of Luxembourg as an audiovisual and communications center. Radio-Television-Luxembourg is Europe's premier private radio and television broadcaster. The government-backed Luxembourg satellite company Société Européenne des Satellites (SES) was created in 1986 to install and operate a satellite telecommunications system for transmission of television programs throughout Europe. The first SES "ASTRA" satellite, a 16-channel RCA 4000, was launched by Ariane rocket in December 1988. SES presently operates 13 satellites. ASTRA 1H is the most advanced satellite with a return channel capacity in the Ka band frequency range enabling two-way satellite communications directly to users’ terminals.

Luxembourg offers a favorable climate to foreign investment. Successive governments have effectively attracted new investment in medium, light, and high-tech industry. Incentives cover taxes, construction, and plant equipment. The recent European Union (EU) directive on services supplied electronically has caused a number of companies to look to Luxembourg, with its relatively low value-added tax (VAT) rates, as a possible location for directing their European operations. U.S. firms are among the most prominent foreign investors, producing tires (Goodyear), chemicals (Dupont), glass (Guardian Industries), and a wide range of industrial equipment. The Department of Commerce's Bureau of Economic Analysis reports that total U.S. direct investment in Luxembourg (on a historical cost basis) was nearly $67 billion at the end of 2003. Foreign direct investment (FDI) data for Luxembourg must be interpreted cautiously, however, because of Luxembourg's role in financial intermediation, particularly involving Luxembourg-based holding companies.

Labor relations have been peaceful since the 1930s. Most industrial workers are organized by unions linked to one of the major political parties. Representatives of business, unions, and government participate in the conduct of major labor negotiations.

Foreign investors often cite Luxembourg's labor relations as a primary reason for locating in the Grand Duchy. Unemployment in 2004 has averaged approximately 4.0%.

Luxembourg's small but productive agricultural sector provides employment for less than 2% of the work force. Most farmers are engaged in dairy and meat production. Vineyards in the Moselle Valley annually produce about 15 million liters of dry white wine, most of which is consumed locally.

Luxembourg's trade account has run a persistent deficit over the last decade, but the country enjoys an overall balance-of-payment surplus, due to revenues from financial services. Government finances are strong, and budgets are normally in surplus.