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Luxembourg Growth is projected to ease to 2.8% in 2020 and to 2.3% in 2021, amid subdued investment and persistent weakness in the euro area, which will hamper further export dynamism. Solid private consumption growth will underpin domestic demand. The buoyant labour market will keep creating jobs, though at a decelerating pace and benefitting primarily cross-border workers. Consequently, the unemployment rate is projected to decline only slightly. The fiscal position is sound and fiscal space is ample. Fiscal policy should be eased if the current slowdown worsens and reduces growth significantly below potential. Increasing the supply of social and private rental housing is key for making the access to housing more equitable and slowing house price growth. Rising household indebtedness creates vulnerabilities for some families and banks, calling for the introduction of borrower-targeted macroprudential tools. Growth is relying more on domestic demand GDP growth was strong in the first half of 2019, mainly due to surging exports. This largely reflected a significant rebound of financial and insurance activities, in part as compensation for a very weak end of 2018. Consumer confidence and retail sales are still strong. Construction maintains an upward trend. However, business surveys are beginning to show a deteriorating outlook, reflecting the slowdown in activity in the euro area. The unemployment rate has declined and there is growing evidence of skill mismatches and shortages, signalling potential capacity constraints.
Luxembourg Growth will rely more on domestic demand
Increasing house prices are a source of risk Price-to-rent ratio
Y-o-y % changes 6.0
Real GDP
5.5
Index 2007 = 100, s.a. 160
Luxembourg Real total domestic demand
5.0
150
Euro area
140
4.5 4.0
130
3.5
120
3.0
110
2.5 2.0
100
1.5
90
1.0
80
0.5 0.0
2015
2017
2019
2021
0
0
2007
2009
2011
2013
2015
2017
70
Source: OECD Economic Outlook 106 database; and OECD Analytical House Price database. StatLink 2 https://doi.org/10.1787/888934045734
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION Š OECD 2019