On Tuesday 18 June 2024, the 2024 edition of the World Competitiveness Yearbook (WCY) was published by the International Institute for Management Development (IMD).

It shows that Luxembourg continues to fall down the rankings, from a high of 12th position in 2021 to a current position of 23rd, its worst result to date. According to the Luxembourg Chamber of Commerce, this "reflects the country’s enormous loss of competitiveness". 

The deterioration of Luxembourg's results has continued since 2021 and has been particularly rapidly since 2022, with the country losing 10 places in just two years, between 2022 and 2024. This is clearly evident, in part, by a net decline of economic activity (its growth rate in 2023, of -1.1%, is lower than that of the euro zone, which increased by 0.4%), but which differs considerably in terms of intensity. Contrary to the Grand Duchy, other small countries are showing flourishing health in this 2024 edition. Singapore is leading the way, followed by Switzerland, Denmark and Ireland.

The 2024 Yearbook highlights certain structural weaknesses in Luxembourg, including the Chamber of Commerce, which have been in place for several years. The continuing erosion of Luxembourg's competitiveness calls for ambitious and rapid reforms, more than just the restoration and reinforcement of the country's competitiveness.

Pillar 1: Economic performance - Luxembourg in free fall

This is the degradation of Luxembourg's ranking to the "economic performance" pillar, which is mainly at the origin of the new decline in the country's overall ranking. This pillar became a historic "fortification" in Luxembourg, thanks to remarkable economic performances. The country was ranked 3rd in 2017, 4th in 2018 and 2019, and 8th in 2020. In 2022, thanks to its good economic resilience in dealing with the pandemic, Luxembourg was also ranked first for this category. However, since then, heavily affected by the inflation crisis, the country has been declining rapidly. In 2023, it will already be at #38. This year it plummeted to 57th position.

In just two years, in the area of ​​“economic performance”, the country has lost 56 places. Between the 2023 and 2024 rankings, Luxembourg will record the second most important fall of all the evaluated countries (18 places), after Colombia (19 places lost). Nevertheless, the Grand Duchy still has solid structural positions - it occupies first place for certain major indicators such as domestic GDP, foreign investment stocks and service exports. It is also 2nd concerning employment rate. But two major weaknesses will obscure this table and deteriorate Luxembourg's ranking. Before the growth problem that the country has been experiencing since 2022, the Grand Duchy ranks 63rd and 62nd out of 67 in terms of the criteria “GDP growth” and “GDP growth by residents”. According to this criterion, it is expected that a growth rate in 2022 will be much weaker than its main competitors, a situation which is explained by the fact that the Luxembourg economy has been significantly less affected by Covid and that it has achieved its recovery phase well before the others. This time, the situation is different, because Luxembourg is facing the economic recession of 2023. The country is effectively experiencing a contraction of its GDP of 1.1%, while the average economic growth rate assessed in this ranking was +1.6%. A slight rebound in growth is expected in 2024 (+2% according to STATEC). It will therefore be important to analyse the sensitivity to the situation regarding the final ranking of Luxembourg in this IMD ranking. The second major weakness in the country’s economic performance: foreign direct investment flows are falling sharply. Luxembourg is now classed as a country with the highest number of entries and the lowest number of exits. It should be noted that significant investment fluctuations could be observed outside of Luxembourg for a year, given the characteristics of the national economy, where financial activities occupy a particularly important place. Thus, by now, the country has already figured low in this criterion (64th in 2018), before being re-established for the first time in the next year (2019). It is therefore advisable to analyse this result with great caution. In return, it must be noted the significant progression recorded by the Grand Duchy for the sub-heading "International Commerce", so that the country will be classified 5th when it was 12th in 2023. It is one of the best performance recorded by Luxembourg according to this criterion since 2008. This must, in particular, be at the important level of service exports.

Pillar 2: Efficiency of public powers - Stability is slowing down, but the fiscal and administrative burden is increasing

Luxembourg is ranked 11th for the "Efficiency of public powers" pillar, a stable position according to the 2023 ranking when it was ranked 10th. The country ranking for this pillar is relatively constant year after year. The forces and weaknesses remain in turmoil. For the armed forces, Luxembourg continues to benefit from its triple A, which has already been confirmed, the low risk of political instability (4th), poor public finances (8th), and a poor public picture (9th). Some criteria are used to compare the level of efficiency of public powers in competitive economies, as was the case with the survey conducted by companies. It should also be noted that the responses formulated by company bosses in Luxembourg allow them to be classified as 11th under the “Adaptability of government policies” criterion, but only 27th under the “Legal and regulatory framework” criterion. This result requires an absolute reduction in the regulatory weight that affects companies in Luxembourg and the European Union. This is not the only weakness for this “public power efficiency” pillar. Luxembourg is still very low-rated (45th) for the sub-category “tax policy”. In detail, the Grand Duchy is classed 56th concerning the total of taxes collected as a percentage of the GDP, 53rd for the product of taxes on personnel income and 59th for the product of taxes on capital and property. The taxpayers concerned about the taxation of companies also contribute to fair tax recovery. The last criterion deserves particular attention: “The number of days necessary to create a company”. With 16.5 days, Luxembourg is 50th, below certain other economies: Singapore (1.5 days), Denmark (3.5 days) and Estonia (3.5 days). This illustrates the surge in simplification that is necessary to operate in the country. The Prime Minister included this in his speech on the state of the Nation.

Pillar 3: Business efficiency - persistent obstacles that threaten the country's competitiveness

After a modest advance on the "Business efficiency" pillar in 2023 compared to 2022 (+1 position), Luxembourg lost ground in 2024. In 26th place, it posted a decline of 13 places compared to its 2021 ranking, to return the highest mark after that on the "Economic performance" pillar.

At the bottom of the “Work Market” column, the Grand Duchy remains at the forefront, particularly because of the international experience of its senior managers (9 years) and its ability to recruit highly qualified staff (13 years). The country advances to 2nd place on the apprenticeship criterion, reflecting its 2022 ranking (26th), but remains well below its performance before the Covid crisis (16th in 2019). On the weaker side, Luxembourg's cost of working hours is averagely higher than that of the European Union (in 2023 it was raised to €53.90), which clearly shows its competitiveness in comparison to other economies such as Ireland and Poland, where the cost of working hours is respectively €40.20 and €14.50. The 44th annual labour cost estimate illustrates the effects of wage indexation which has repeatedly impacted companies and the economy as a whole. The country is in the process of classifying wages in the manufacturing sector (€28.08) and salaries in the services sector (€57). This is also the case for the average number of annual working hours (60th, with 1,488 hours). According to this report, the Grand Duchy is very close to the trio formed by the United Arab Emirates, Qatar and China, so the average annual total is 2,400 hours. The availability of the qualified workload poses a major problem for companies (53th), particularly those facing their search deadline, outside the Grande Region, even within the European Union, to find the profiles they need. In this context, entrepreneurs are faced with a situation of difficulty in finding experienced senior managers in 2023 (as reported in the previous year). By the way, Luxembourg is moving backwards on the “Employee training” indicator from 16th to 30th positions. This clarification should be made clear that continuing professional training is a key tool for developing the new skills needed, particularly in the light of the digital and environmental transitions. The decline in Luxembourg’s competitiveness is also marked by the “Management Practices” sub-pillar (loss of 12 places between 2023 and 2024). Two very explicit weaknesses, in part, in this situation. Right from the start, entrepreneurs are faced with more and more difficulties than ever before, such as having to look for agility (Luxembourg is moving backwards from 20th to 35th place between 2023 and 2024, according to this indicator), responding quickly to opportunities and threats (back from 28th to 39th place) and remaining well informed of developments in the market situation (according to this indicator, the 30-place fall is abysmal). In an uncertain climate marked by global geopolitical tensions and a decline in activity in Luxembourg, business morale has clearly deteriorated compared to the previous edition. Secondly, the entrepreneurial spirit remains little developed in Luxembourg. If the fear of falling is not a new phenomenon, it will surely be reinforced in the space of a year. Thus, in 2023, 47.29% of the population aged 18-64 said that this was for the job of creating their own company (compared to 44.13% in 2022). This proportion has continued to rise since 2020. At the level of companies, the entrepreneurial spirit of managers is declining (down 11 places in 2024 compared to 2023). Given the presence of women in positions of responsibility, Luxembourg’s competitiveness is marginal. The proportion of seats detained by women in the administrative councils will be increased between 2022 and 2023, from 24.60% to 34.32% (at least at the highest seat levels). The progression of the Grand Duchy from 31st to 22nd position on this indicator is positive. In return, the proportion of women in management positions fell (28.20% in 2020 to 26.46% in 2022), with the country recovering 3 positions to reach 48th place.

Pillar 4 : Infrastructure - an R&D ecosystem to consolidate, scientific networks to promote

Luxembourg's results on the "Infrastructures" pillar vary slightly compared to previous years, with the country now rising to 24th position, followed by a lighter fall in 2023 (-1 position).

The country improved its results in the sub-categories “Basic infrastructure” (gain of 6 places), “Technological infrastructure” (+2), “Health and environment” (+1) and “Education” (+1). In return, its ranking falls in the “Scientific infrastructures” aspect (-4). At this last point, the poor performance is evident in two particular aspects: R&D and the number of degrees in scientific and engineering subjects. Luxembourg is in 41st position for the part of the GDP attributed to R&D (0.98% in 2022), just below countries other than Germany and Belgium, which account for 3.13% and 3.41% respectively of their GDP to R&D. The continued decline in the GDP allocated to R&D since 2019 raises questions, given that R&D activities are a key pillar in strengthening innovation. This reduction is due to a large proportion of low R&D expenditure in the private sector. In Luxembourg, the share of R&D expenditure on companies in 2022 represents 0.50% of GDP, compared to 2.51% in Belgium and 1.78% in Denmark. For those with degrees in computer science, engineering, mathematics and natural sciences in 2021, they represented 19.78% of their promotion. While the trend is to increase for a year on the other, the Grand Duchy's results remain well below those of the leaders in the rankings: Malaysia and Hong Kong (with respectively 43.53% and 41.40% in 2021).


In summary, the 5 challenges for Luxembourg's competitiveness in 2024 are as follows:

1. Ensure the balance of public finances and reform the retirement system
2. Modernise the state by simplifying and digitalising administrative procedures
3. Strengthen competitiveness through tax measures
4. Support the construction sector and revitalise the real estate market
5. Accompany the development and transformation of the industrial sector

These challenges, supported by the Chamber of Commerce at the IMD Institute as an institutional partner in the classification of Luxembourg, reflect the company's high-risk occupancy rates. They are identified on the basis of regular surveys carried out by representatives of the Luxembourg economy and direct returns from companies.