Credit: STATEC

Luxembourg statistical institute, STATEC, has reported that the Luxembourg economy returned to growth in 2024. 

In its report published on Monday 6 January 2025, STATEC also noted that average wage costs slowed down significantly, whilst employment growth declined.

The Luxembourg economy returned to growth in 2024 after a contraction in real GDP in 2023. However, STATEC believe this recovery lacks vigour and remains unevenly distributed across sectors. For 2024, a modest expansion of +0.5% is expected, with more robust growth forecast for 2025 (+2.5%) and 2026 (+2.4%), supported by stronger domestic and external demand thanks to lower interest rates favouring residential investment and the export of financial services against a backdrop of stronger external demand. Household consumption is also expected to improve with a slight decrease in savings.

As inflation in the eurozone reached the 2% target at the end of 2024, in Luxembourg it rose to 1% (from 0.8% in December). In 2025, a rise in inflation in Luxembourg is expected. Following the easing of energy price cap measures, inflation is expected to rise to 2.1% in 2025 and then fall to 1.8% in 2026. The next wage indexation is scheduled for the second quarter of 2025. The average wage cost has slowed down significantly since 2023 and only increased by 1.2% over one year in the third quarter of 2024. Due to the lower impact of indexation, linked to the slowdown in inflation, the temporary reduction in employer contributions is contributing the most to this slowdown. After a +2.2% forecast for 2024, the average wage cost is anticipated to rebound in 2025 (+3.0%) with the expiry of the measure on contributions. This would then settle at 2.4% in 2026. Although inflation is decreasing and real wages are increasing, household consumption remains hampered by a high level of savings (despite a downward trend).

Meanwhile, employment growth in Luxembourg continues to slow, with 2024 levels reaching a low not seen since 2009. Employment in construction remains on a downward trend, but this was less pronounced over the last few quarters. The anticipated rebound in activity is also expected to contribute to the strengthening of employment growth: STATEC anticipates +1.4% for 2025 and +2.2% for 2026 but these rates are still significantly lower than the average of the last 20 years (close to 3%). The unemployment rate is expected to increase slightly to 5.9% in 2025 before falling back to 5.7% in 2026, reflecting stronger employment growth.

Government revenues are expected to slow between 2024 and 2026 due to the adjustment of tax scales, the decline in fuel sales, and a normalisation of corporate tax balances. Public spending is expected to follow a similar trajectory, with growth limited by the end of crisis measures. The public deficit is expected to widen, from -0.6% of GDP in 2024 to -1.9% in 2026.

Greenhouse gas emissions in Luxembourg are expected to decrease significantly, with a projected decrease of 4.5% in 2024 and 5% in 2025. This reduction is due to a drop in the consumption of petroleum products as well as the increasing use of electricity. Gas and electricity prices are expected to increase from 2025 with the gradual end of tariff shields.

However, any expected improvement in the economy is subject to risks, noted STATEC, as growth forecasts are surrounded by uncertainties regarding the evolution of inflation and the subsequent reactions of monetary policy. These risks ultimately affect growth expectations in both the eurozone and Luxembourg. On the negative side, higher-than-expected key interest rates in the eurozone could break the recovery expected for 2025. On the positive side, a faster-than-expected decline in rates would add around 1% point to growth forecast for next year.

Uncertainties also surround the anticipated improvement in employment as the current slowdown in cross-border employment could be not only cyclical but also structural.

Full details of the STATEC report can be found at: https://statistiques.public.lu/fr/actualites/2025/conjflash-12-24.html