The promotion of foreign trade and internationalisation of Luxembourg companies in a changing world – some reflections on the background

Luxembourg’s economy is distinguished by being extremely open internationally (share of exports and imports in GDP) and, on the basis of this indicator, ranks among the most open in the world (as are Singapore, Hong Kong, etc.). This is explained by the considerable weight in its foreign trade of exports of services, nearly 50% of which are of a financial nature. But the fact remains that foreign trade in goods also plays a decisive role in the creation of economic value and Luxembourg companies are increasingly adopting the path of selling their products to clients residing abroad – an obvious choice, since the chances of increasing sales are limited within the confines of the home market. The business plans of many companies established in Luxembourg are exclusively targeted at international markets and the Grand Duchy offers numerous advantages as an international platform for developing import/export activities with partners located throughout the globe.

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Budget 2023: truly responsible, realistic and supportive?

While the budget for 2021 was necessarily exceptional because of the COVID-19 crisis, it seems that the exception is becoming the rule in these turbulent times. This was confirmed by the Finance Minister’s speech entitled “A crisis budget in a time of crisis” when tabling the 2023 financial year State budget bill (and the multi-annual 2022-2026 financial programming bill), if any doubt might still have lingered. The Prime Minister’s State of the Nation address the previous day had set the tone.


Characterised as responsible, realistic and supportive, is the 2023 budget really these things?

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National Reform Programme, National Stability Programme, Technical Review of the General Pension Insurance Scheme: A good time to take a look at the country’s challenges 

Being an economic analyst in these times is a challenge. And for good reason: in recent months, the global economic situation has been riddled with a series of significant shocks that have regularly changed forecasts. After, ‘everything depends on vaccination rates’, and ‘everything depends on price trends’, came, ‘everything depends on the situation in Ukraine’. Indeed, beyond the dramatic human consequences of this new crisis that has blindsided the entire world, the invasion of Ukraine has a much greater global impact than we could have imagined: increased shortages of electronic materials and raw materials in general, scarcity of basic food products, and more. Above all, this international crisis is right on the heels of a previous international crisis that already greatly weakened the economic fabric. 

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Moving from a linear economy to a circular economy

Russia’s recent invasion of Ukraine on 24 February has led to a further surge in energy and commodity prices. The price of a barrel of Brent crude oil has quickly gone above USD 100, the first time this has happened since 2014, reaching almost USD 150 at the start of the 10th week of the year. As for wheat, last Friday it reached an unprecedented EUR 393 per tonne on the European market Euronext, compared to EUR 284 per tonne in November 2021. [1]

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A rise in prices for the long haul

With an annual inflation rate[1] estimated at 4.1% in December 2021 and 3.6% in January 2022[2] by STATEC, the rise in prices continues at a sustained rate, threatening the consolidation of the Luxembourg economy and weighing on the costs borne by companies. The effect on their competitiveness is undeniable, with the latter seeing their margins and profitability decline, and as a consequence, their capacity for innovation and investment reduced in the medium run, particularly in the digital and environmental transitions. In the long run, this can have a negative impact on the growth potential of the economy, leading to the fear that companies will fail, resulting in a loss of tax revenue for the State, a decrease in the attractiveness of Luxembourg, and a hindrance to economic diversification. In order to counter this vicious circle before it takes hold, it is time for action.

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Climate transition: Saying yes to ambitious and realistic targets and no to economic decline

Devastating floods in the Greater Region, forest fires in the south of Europe, and record temperatures…. An accumulation of extreme weather events in Europe and around the world has dominated the news this summer. The conclusions of 230 experts from 60 countries that make up the Intergovernmental Panel on Climate Change (IPCC) are therefore not surprising: they show with an unprecedented degree of certainty and precision that the climate is changing more quickly than expected. This sixth assessment report, ‘Climate Change 2021: The Physical Science Basis’, published in August although drafting began in 2017-2018, warns that the critical threshold of 1.5°C (compared to the pre-industrial era) will have already been passed by around 2030. That is, ten years earlier than predicted in 2013. To keep warming below 2°C until 2030 and delay, or at least limit, the increasingly damaging and recurring effects of global warming, scientists are sounding the alarm and calling on the international community to act without delay.

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Profitability: A vaccine for companies

The vaccination campaign is faltering, and Luxembourg’s performance in this regard (compared with most other developed countries) is in flagrant contradiction with the evolution of its GDP. Indeed, while Luxembourg is still unable to increase the rate of vaccination of its population an absolute prerequisite for maintaining a certain degree of acceptance of the measures restricting individual and collective freedoms and for giving employees and companies a chance to emerge from this crisis – the Grand Duchy recorded a surprisingly solid economic performance at the end of 2020. In the fourth quarter of 2020, the GDP in real terms (seasonally adjusted) increased by 1.4% compared with the fourth quarter of 2019. Its quarterly evolution was 1.6% compared to the previous quarter.

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2021: A decisive year of decisions

At the beginning of 2020, the shock was as sudden as it was unexpected and the past year continued to be exceptional in many ways: healthcare systems and hospitals overwhelmed because of the virus, health measures, population lockdowns, massive use of teleworking in sectors where it is possible, administrative closures of businesses, etc. Countless unprecedented measures.

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The five prerequisites for limiting the socioeconomic damage from this unprecedented crisis

Alongside the humanitarian and health tragedy, the COVID-19 crisis has had an unprecedented impact on the global economy, and therefore on the European and Luxembourg economies. In the Grand Duchy, which is one of the world’s five most open economies, the general lockdown and the sudden halt to economic activity are threatening the foundations of a healthy, stable, prosperous and dynamic economic and financial ecosystem.

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