Chamber of Commerce Analyses Luxembourg’s 2025 Budget, Long-Term Challenges

The Chamber of Commerce recently published its opinion on bills No. 8444, covering the 2025 State budget, and No. 8445, regarding multi-year financial planning for 2024-2028.

While global growth shows some improvement with easing monetary policies, it remains uneven. Emerging economies are performing well, the US is holding steady, but Europe faces challenges, hindered by political and economic difficulties in Germany and France. This contrast with the US, as highlighted in the recent Draghi report, exacerbates Europe's lag.

Luxembourg, too, faces its own struggles. The country has experienced stagnating growth, now reflected in a slowing job market. After a recession in 2023, growth is expected to recover modestly to 1.5% in 2024 and rise gradually to 2.7% in 2025. Projections suggest growth of 2% in 2026, 3.2% in 2027, and 3% in 2028, forming the basis of current budget forecasts.

A stabilised budget situation in the short term

The Chamber of Commerce acknowledged the government’s efforts to regain fiscal flexibility. The 2025 budget focuses on boosting revenues and controlling spending, including phasing out inflation protection measures and curbing current expenditures. As a result, expenditures are projected to rise by 4.5%, while revenues grow by 5.2%, improving the budget deficit to 1.5% of GDP in 2025 (from 1.7% in 2024).

By 2027, the deficit is expected to drop below €1 billion and reach 0.7% of GDP in 2028. Public debt is forecast to peak at 27.5% of GDP in 2024-2025 before falling to 26% by 2028. The Chamber welcomed this trajectory, noting that even under less favourable economic scenarios, debt would remain below 30% of GDP. “Luxembourg’s political and financial stability is what attracts investors,” emphasised Carlo Thelen, Director General of the Chamber of Commerce, stressing the importance of maintaining the country’s AAA credit rating, now reserved for an increasingly closed group of countries.

While the Chamber praised short-term budget improvements, it raised concerns about the medium- and long-term outlook:

Firstly, the Chamber of Commerce pointed out the unsustainable nature of certain revenue sources. Revenues from taxes and excise duties on tobacco and fuel sales, representing 7.6% of 2025 central government revenues, were deemed unsustainable. The Chamber urged the government to plan for their decline.

Secondly, the Chamber of Commerce expressed stronger concerns for Luxembourg facing significant demographic challenges. By 2070, the working-age population (15-64 years) is projected to shrink from 69.3% to 57.3%, while spending on pensions, healthcare and long-term care could rise from 17.2% of GDP in 2022 to 27.9% in 2070. Without reforms, the reserve of the general pension insurance scheme, currently at €27.4 billion, is expected to be depleted by 2047.

Social Security, already showing signs of strain, is forecast to shift from a surplus of €1.2 billion in 2023 to a €15 million deficit by 2028, or €355 million under less optimistic employment growth. Similarly, health and maternity insurance deficits are projected to grow from €46 million in 2024 to €190 million in 2028.

The Chamber of Commerce called on the government to create a strategy for a sustainable system that respects intergenerational equity while leveraging economic growth to finance Luxembourg’s social model. “Economic dynamism is essential to funding this model,” concluded Carlo Thelen.