Luxembourg Returning To Growth, Says IMF

by Ulrika Lomas, Tax-News.com, Brussels

06 May 2004

Following a prolonged slowdown in economic activity, Luxembourg’s economy is likely to rebound during 2004, although various “obstacles” may hinder a return to the impressive growth rates seen in the 1980s and 1990s, the IMF stated on Tuesday.

"Medium growth prospects are now less buoyant in comparison to the exceptional growth performance of the past decade, as productivity growth and the expansion of the financial sector have slowed," the IMF said in its annual Article IV report, predicting growth of 2.3% this year, up from 1.2% in 2003.

Whilst acknowledging that the government is still adjusting to the economic slowdown following the bursting of the stock market bubble in 2000, the IMF noted that tax cuts and high expenditure have contributed to the nation’s first general government deficit in two decades.

The fund also observed that high wage settlements and weak corporate productivity have cut into profits and competitiveness, exacerbated by a rise in the value of the euro.

However, the Directors went on to note that recent developments have confirmed that Luxembourg’s financial sector is "robust, efficient, and well supervised". They also recognised that recent steps to improve financial sector supervision will help to maintain the financial sector’s strength in the face of increasing global competition and pressure to harmonise tax rates.

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