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Economy of Luxembourg

Although Luxembourg in tourist literature is aptly called the "Green Heart of Europe," its pastoral land coexists with a highly industrialized and export-intensive economy. Luxembourg enjoys a degree of economic prosperity almost unique among industrialized democracies.

In 1876, English metallurg a refining process that led to the development of the steel industry in Luxembourg and the founding of the Arbed company in 1911--now the second-largest steel producer in Europe. The iron and steel industry, located along the French border, is the most important single sector of the economy. Steel accounts for 29% of all exports (excluding services), 1.8% of GDP, 22% of industrial employment, and 3.9% of the work force.

The restructuring of the industry and increasing government ownership in Arbed (31%) began as early as 1974. As a result of timely modernization of facilities, cutbacks in production and employment, government assumption of portions of Arbed's debt, and recent cyclical recovery of the international demand for steel, the company is again profitable. Its productivity is among the highest in the world. U.S. markets account for about 6% of Arbed's output. The company specializes in production of large architectural steel beams and specialized value-added products.

There has been, however, a relative decline in the steel sector, offset by Luxembourg's emergence as a financial center. Banking is especially important. In 1997, there were 215 banks in Luxembourg, with 21,000 employees. Political stability, good communications, easy access to other European centers, skilled multilingual staff, and a tradition of banking secrecy have all contributed to the growth of the financial sector. Germany accounts for the largest-single grouping of banks, with Scandinavian, Japanese, and major U.S. banks also heavily represented. Total assets exceeded $200 billion at the end of 1996, of which some 81% was denominated in foreign currencies, primarily U.S. dollars and German marks. More than 9,000 holding companies are established in Luxembourg. The European Investment Bank -- the financial institution of the European Union -- also is located there.

Government policies promote the development of Luxembourg as an audiovisual and communications center. Radio-Television-Luxembourg is Europe's premier private radio and television broadcaster. The government-backed Luxembourg satellite company "Societe Europeenne des Satellites" (SES) was created in 1986 to install and operate a satellite telecommunications system for transmission of television programs throughout Europe. The first SES "ASTRA" satellite, a 16-channel RCA 4000, was launched by Ariane Rocket in December 1988. SES presently operates five satellites with two more to be launched before the year 2000.

Luxembourg offers a favorable climate to foreign investment. Successive governments have effectively attracted new investment in medium, light, and high-tech industry. Incentives cover taxes, construction, and plant equipment. U.S. firms are among the most prominent foreign investors, producing tires (Goodyear), chemicals (Dupont), glass (Guardian Industries), and a wide range of industrial equipment. The current value of U.S. direct investment is almost $1.4 billion, on a per capita basis--the highest level of U.S. direct investment outside of North America.

Labor relations have been peaceful since the 1930s. Most industrial workers are organized by unions linked to one of the major political parties. Representatives of business, unions, and government participate in the conduct of major labor negotiations.

Foreign investors often cite Luxembourg's labor relations as a primary reason for locating in the Grand Duchy. Unemployment in 1999 averaged less than 2.8% of the work force.

Luxembourg's small but productive agricultural sector provides employment for about 1%-3% of the work force. Most farmers are engaged in dairy and meat production. Vineyards in the Moselle Valley annually produce about 15 million liters of dry white wine, most of which is consumed locally.

Luxembourg's trade account has run a persistent deficit over the last decade, but the country enjoys an overall balance-of-payment surplus, due to revenues from financial services. Government finances are strong, and budgets are normally in surplus.

GDP: purchasing power parity - $14.7 billion (1999 est.)

GDP - real growth rate: 4.2% (1999 est.)

GDP - per capita: purchasing power parity - $34,200 (1999 est.)

GDP - composition by sector:
agriculture: 1%
industry: 23%
services: 76% (1999 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): 1.1% (1999 est.)

Labor force: 236,400 (one-third of labor force is foreign workers, mostly from Portugal, Italy, France, Belgium, and Germany) (1998 est.)

Labor force - by occupation: services 83.2%, industry 14.3%, agriculture 2.5% (1998 est.)

Unemployment rate: 2.7% (1999 est.)

Budget:
revenues: $4.73 billion
expenditures: $4.71 billion, including capital expenditures of $NA (2000 est.)

Industries: banking, iron and steel, food processing, chemicals, metal products, engineering, tires, glass, aluminum

Industrial production growth rate: 1.6% (1999 est.)

Electricity - production: 382 million kWh (1998)

Electricity - production by source:
fossil fuel: 60.73%
hydro: 24.86%
nuclear: 0%
other: 14.41% (1998)

Electricity - consumption: 5.856 billion kWh (1998)

Electricity - exports: 900 million kWh (1998)

Electricity - imports: 6.4 billion kWh (1998)

Agriculture - products: barley, oats, potatoes, wheat, fruits, wine grapes; livestock products

Exports: $7.5 billion (f.o.b., 1998)

Exports - commodities: finished steel products, chemicals, rubber products, glass, aluminum, other industrial products

Exports - partners: Germany 33%, France 20%, Belgium 12%, UK 6%, US 5%, Netherlands 4% (1998)

Imports: $9.6 billion (c.i.f., 1998)

Imports - commodities: minerals, metals, foodstuffs, quality consumer goods

Imports - partners: Belgium 36%, Germany 27%, France 12%, Netherlands 5%, US 4% (1998)

Debt - external: $NA

Economic aid - donor: ODA, $160 million (1999)

Currency: 1 Luxembourg franc (LuxF) = 100 centimes; note - centimes no longer in use

Exchange rates: euros per US$1 - 0.9867 (January 2000), 0.9386 (1999); Luxembourg francs (LuxF) per US$1 - 34.77 (January 1999), 36.299 (1998), 35.774 (1997), 30.962 (1996), 29.480 (1995); note - the Luxembourg franc is at par with the Belgian franc, which circulates freely in Luxembourg
note: on 1 January 1999, the EU introduced a common currency that is now being used by financial institutions in some member countries at a fixed rate of 40.3399 francs per euro; the euro will replace the local currency in consenting countries for all transactions in 2002

Fiscal year: calendar year

See also : Luxembourg



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