In a worrying geopolitical context and a socio‑economic environment marked by low growth — no longer able to generate the wealth needed to sustainably finance Luxembourg’s social model — it is more necessary than ever to strengthen the competitiveness of Luxembourg companies and increase the attractiveness of the country as a production and investment site. As the Prime Minister has stated, 2026 must be the year of competitiveness.
The year 2026 opened in an unstable, fragmented world, under a climate of tension that evokes a period many have never experienced. While the war in Ukraine drags on with dramatic consequences, other flashpoints are emerging or reigniting, fuelled by openly imperial ambitions and a gradual weakening of multilateralism. From South America to the Arctic, from Asia to the Middle East, geopolitical fault lines are multiplying. These upheavals are not peripheral: they are reshaping the global economic balance in depth.
Globalisation as we knew it — which, despite its excesses and imbalances, significantly contributed to growth and poverty reduction — is now under strain. The return of protectionism, the growing politicisation of trade and the re‑emergence of two rival economic blocs have profoundly changed the rules of the game.
Caught between these blocs, Europe is struggling to regain sustainable economic momentum. On one side, it is overshadowed by the United States hyper‑attractiveness, able to draw in capital, talent and innovation through aggressive industrial policies. On the other, it faces China’s hyper‑competitiveness, heavily supported by large state subsidies. Between these poles, Europe advances with difficulty — held back by sluggish growth, a productivity gap and layers of internal constraints.
What about Luxembourg?
In this explosive context, Luxembourg is particularly exposed. Its economic model — built on exceptional openness to trade, capital and international talent — is a strength in times of global expansion but becomes a vulnerability when the environment deteriorates. Every global slowdown, every external shock, every loss of competitiveness has faster and stronger repercussions here than elsewhere. The illusion of an economy naturally protected by its size, wealth or institutional solidity does not withstand the facts for long.
Recent Luxembourg economic national indicators confirm this reality. In 2025, growth did not exceed 1% according to STATEC — far, very far, from the historical average of 2.9% over 1995–2024. In reality, our economy has not grown since 2021. This prolonged lethargy is leaving deep marks, clearly visible in the results of the Chamber of Commerce’s Economic Barometer. Business leaders’ confidence in the medium‑term outlook for Luxembourg’s economy now stalls at 67%, whereas it hovered around 90% before 2020. Business activity has been significantly weaker than expected in recent months. For 30% of companies, it even fell in the second half of 2025. The situation is particularly difficult for s everal strained sectors, such as industry, construction (including upstream and downstream activities) and HORECA.
STATEC does anticipate a slight rebound in 2026, with expected growth of 1.7%. But this recovery remains fragile. New geopolitical uncertainties, weak European demand and, above all, companies’ persistent caution regarding investment clearly threaten this trajectory. According to STATEC, productive investment (gross fixed capital formation) fell in 2023 (–5.1%) and 2024 (–2.7%), and remained erratic in 2025 — particularly in non‑residential construction and in certain industrial segments. Yet without investment, there is no upscaling, no productivity gains, no sustainable job creation.
This weakness is all the more concerning as labour productivity fell by 2.9% between 2003 and 2023 in Luxembourg, while it rose by 21.1% over the same period in the European Union. Cost increases — especially wages — are no longer being offset by efficiency gains. This is a structural, largely internal problem that is durably undermining our competitiveness in a lasting way.
Yet public debate in Luxembourg sometimes reveals a gap between this reality and certain demands expressed. While many businesses operate in a fragile, volatile environment, any measure likely to raise labour or production costs must be assessed in light of its concrete effects on competitiveness and investment. In an open and highly competitive economy like Luxembourg’s, these decisions have rapid and sometimes irreversible consequences.
2026: A decisive window for action
In this context, the announcement by Prime Minister Luc Frieden to make 2026 the year of competitiveness is an important and long‑awaited signal. It reflects a clear awareness of the challenges facing our economy and of the need to respond without delay. The window for action is closing: legislative proposals not initiated this year have little chance of being adopted before the next political deadlines.
This announcement gives reason for hope. It sets a clear course and creates legitimate expectations — both among businesses and across the broader economic landscape. But for this commitment to fully deliver, it must now translate into concrete decisions, effective reforms and clear measures. Competitiveness cannot be decreed; it is built over time through coherent choices — sometimes demanding — that are essential for restoring confidence and reviving investment.
We have had the opportunity to submit to the Government concrete avenues for action that would help turn intentions into reality. Several of these proposals relate to cost control — starting with tax costs. As tax competition has intensified in Europe in recent years, it seems important to set a new course: bring the overall corporate tax rate below the symbolic 20% threshold by 2030. To meet this objective, corporate income tax should be reduced by 1.5 percentage points in 2027 (a one‑point cut has already been announced) with a similar effort in 2028. Such a fiscal roadmap would send an extremely positive message to entrepreneurs.
A second cost‑related priority is labour cost control. The prospects for raising the minimum social wage to comply with the EU directive[i] on adequate minimum wages represent a real threat to our competitiveness. The directive and the CJEU[ii] judgment of 25 November 2025 confirm that Luxembourg remains sovereign in determining the adequacy of its minimum wage and can rely on indicative benchmark values to guide its assessment. The directive aims to encourage Member States to establish criteria promoting convergence across the EU. However, an increase in Luxembourg’s minimum wage—already the highest in Europe—would, paradoxically, lead to greater divergence. STATEC already anticipates an average wage cost increase of 3.6% in 2025 and 3.1% in 2026, driven by indexation and social contributions. It would therefore be prudent to refrain from any increase beyond the scope of the current biannual adjustment and to commit to evaluating any future reform on the basis of economic indicators.
The increase in pension-related social contributions has already significantly raised labour costs since early January. Above all, it sent a very negative signal to companies and investors: contribution rates appeared as the main adjustment variable to ensure the pension system’s sustainability. The Government must therefore reassure economic actors by committing to rule out similar adjustments in the future. This requires ambitious action on health insurance, where the current legal mechanisms risk triggering an ‘automatic’ increase in the contribution rate in the event of a clear imbalance between revenues and expenditures. Such an adjustment could foreseeably be triggered as early as 2027 if no savings measures are taken.
This is not the time to work less
Another reality is clear in the current context: this is absolutely not the moment to reduce working time — not per day, per week, per year, nor over a lifetime. With constant productivity, reducing working time means producing less at the same cost, or producing the same at a higher cost. The mechanism is simple and well documented. For companies, the adjustment is immediate: pressure on margins, delayed investments, postponed hiring.
The issue is neither ideological nor social; it is fundamentally economic and budgetary. In a context of demographic ageing and mounting pressure on the financing of pensions, healthcare and long‑term care, our economy must learn to live within its means without placing unsustainable burdens on future generations.
Other concrete demands remain topical and must be followed by effective measures to strengthen business competitiveness — in particular on cross‑border home-office (implementing a 25% ‘safety sphere’), support for entrepreneurship, skills development and combating abusive absenteeism.
There is no alternative
There is no alternative to growth and competitiveness. A society prospers sustainably only if its productive base develops. Social progress results from value creation; it is not a prerequisite for it.
Luxembourg still enjoys a relatively favourable starting position. But this advantage is not guaranteed. Without a genuine capacity for reform, it will erode rapidly. Conversely, if the Government chooses competitiveness as its compass, 2026 can become a true pivot and open a new phase of economic renewal.
The question is no longer whether we should reform, but whether we collectively have the will to do so. Without reforms, the Luxembourg model — which has already reached its limits — risks a painful end. With courageous, coherent and well‑judged choices, it can remain sustainable, attractive and a source of prosperity for generations to come.
Jean Monnet observed that ‘people only accept change when it is necessary, and they only see necessity in a crisis’. The challenge for Luxembourg is precisely to escape that logic by choosing reform today, before it is imposed by constraint.
[i]https://eur-lex.europa.eu/legal-content/FR/TXT/HTML/?uri=CELEX:32022L2041
[ii] This judgment partially invalidated the directive on adequate minimum wages.