Luxembourg’s economic growth is expected to strengthen next year with household incomes to be boosted by falling inflation and a further wage indexation, the OECD has said.
However, energy price aids should be scrapped and the country’s pension system should be reformed to help put the public finances on a more secure footing, according to an assessment of Luxembourg’s economy published on Wednesday.
The economy is expected to grow by 1.2% this year, 2.3% next year and 2.4% in 2026, the report by the group of the world’s most economically developed countries concluded.
Also read:EU expects slight upturn in Luxembourg economy for 2025
The OECD forecast for GDP growth in the coming years is in between predictions made by the European Commission, which predicts 2.3% growth in 2025 and 2.2% in 2026, and Statec, which estimates an expansion of 2.7% in the coming years.
Also read:Higher unemployment and lower growth forecast for 2025
“Private consumption will remain robust as households’ real disposable income will be bolstered by a further round of wage indexation and receding inflation. Lower interest rates will help the financial and construction sectors to gradually recover,” the OECD said.
Inflation is expected to continue to decline, hitting 1.9% by the end of 2026, the report concluded, despite a resurgence next year as energy support schemes are scaled back, findings which are broadly in line with predictions issued by Statec.
Also read:Luxembourg inflation continues to fall, hitting 0.8% in November
However, the energy support schemes should now be completely withdrawn, the OECD said. “Energy policy support should be fully unwound as energy prices have moderated and household incomes have been supported by wage indexation,” the report urged.
Also read:What are the wage indexation scenarios for 2025?
Luxembourg’s unemployment rate “should peak around 6% in 2025 before gradually starting to decrease as activity picks up”, the OECD report said.
However, large-scale reforms to the country’s pension system are required in order to bolster public finances in the coming years, the report warned, coming as the first phase of a public consultation on potential changes ended earlier this week.
Also read:Almost 2,000 proposals received from public on pension system reform
“The key fiscal priority is to put the pension system on a sustainable footing, as pension expenditure is expected to sharply increase over the next few decades,” the OECD said.
“Luxembourg further needs to implement structural reforms to transition to a growth model based on innovation and productivity growth,” the report stated.
“Promoting the use of public transport and alternative sustainable commuting options by increasing capacity and expanding the network will lower emissions and raise the attractiveness of Luxembourg for cross-border workers,” the report added.
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Publish date : 2024-12-05 08:09:00
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