Having remained a rather poor agricultural country for centuries, Luxembourg is, with a GDP of US $ 68,770 million (2018) and with over $ 80,640 international annual income per capita (2018), one of the richest states in the world. Compared to the other EU countries, moreover, Luxembourg is one of the very few that does not have difficulty in respecting the economic parameters established by the Maastricht Treaty: the deficit of the state budget is very modest; the ratio of public debt to GDP is 21.809%, against a European average of 7.3%, while the inflation rate is among the lowest in Europe (2.018% in 2018). The beginning of the economic transformation of Luxembourg dates back to 1878, when the application of the Thomas dephosphoration processmade it possible to use iron ores with a high phosphorus content, of which the country possessed large deposits. The proximity of the Belgian and German coalfields also favored the rise of a thriving steel industry which, starting from the 1970s, was hit by a crisis: the production of cast iron, steel and ferroalloys has gradually declined, with a consequent reduction in manpower employed. However, the country has long been able to find another pillar for its economy: thanks to tax legislation that is very advantageous towards foreign capital (although revised in a restrictive sense in the processes of community integration), fictitious foreign companies have multiplied – mainly European and American – based in Luxembourg, OECD, in 2000, for suspected money laundering operations of local banks. According to allcountrylist, Luxembourg is today an international financial and banking power, where services are the real driving force of the economy: overall, tertiary activities involve more than half of the active population (against less than a third of those employed in industry) and contribute to 87.5% to the formation of the gross domestic product. Agriculture now plays a rather marginal role, participating minimally in the formation of national income (0.3%); barley, oats and potatoes are grown in northern Luxembourg, while in the southern regions fruit growing is widespread in addition to wheat: apples, plums and even grape production along the Moselle. The cultivation of flowers, especially roses, is also of moderate importance.
As for breeding, which is conducted with modern and rational methods, cattle prevail, which allow a considerable export of meat and dairy products. The resources of the subsoil are limited to iron ores (however gradually being depleted) so as to force the country to significant imports of the mineral (most of it coming from France). Almost half of the production of electricity is of thermal origin, obtained with imported fuels. The manufacturing sector is quite diversified, which includes tanneries, leather goods, tire factories, textile factories, cement factories, tobacco factories, food industries (dairies, breweries) and chemical (fertilizers, plastics, etc.). Well integrated into the road and rail system of Europe, Luxembourg has a developed internal communications network: the railway network extends for 275 km (2017), the road network for 5227 km (of which 165 km of motorways). The capital, the hub of all state communications, is home to an international airport.
Since 1964 the canalization of the Moselle has given Luxembourg direct access to navigation on the Rhine via the river port of Mertert: the completion of the work therefore favored the establishment of a free offshore register for vessels in 1988. Given the country’s economic structure, foreign trade plays a decisive role: exports mainly concern products from the steel industry, followed by plastics, fabrics and textile fibers, while imports consist mainly of iron ores, fuels, vehicles and machinery. Exchanges with Germany, France and Belgium are active, although the trade balance has shown a modest deficit for some years. Finally, Luxembourg’s considerable activity in the field of trade and economic agreements should be noted: in addition to the customs union with Belgium and the Netherlands (Benelux) dating back to 1958, Luxembourg was a founding member of the European Economic Community (now European Union) and in the 1980s participated in the drafting of the Maastricht Treaty, the first member state to meet all the requirements to join the EU. Another important item of Luxembourg’s economic balance is tourism: a source of attraction, in addition to the capital, are the Moselle valley, renowned for its production of white, sweet and fruity wines, and the Ardennes mountains., full of winding valleys, rivers, plateaus covered with vegetation and castles. In the early 2000s, economic development showed some signs of a slowdown and negative effects on employment even though, overall, unemployment records the lowest rate in Europe (5.4% in 2018). Although these negative factors do not compromise the general stability of the Luxembourg economy, the government’s economic policy is careful to limit their effects, fearing that increases in the budget deficit and public debt may result.
The extreme caution in the management of economic policy is also closely connected with the close dependence of the state’s revenues from the financial sector (taxes on corporations and workers’ income), characterized by strong volatility, also due to the progressive harmonization of financial market rules in the EU. In this perspective, the prospects for further development for Luxembourg depend on the government’s ability to diversify its economy: a process that has already started in recent years with the support for research for the development and application of new technologies in the sector of communications. The Luxembourg financial sector is expected to benefit from a process that has already started in recent years with support for research for the development and application of new technologies in the communications sector. The Luxembourg financial sector is expected to benefit from a process that has already started in recent years with support for research for the development and application of new technologies in the communications sector. The Luxembourg financial sector is expected to benefit from Brexit, through the influx of new business.
