Luxembourg: 2026 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Luxembourg

The 2026 Article IV Consultation discusses that Luxembourg’s economy has yet to regain its past dynamism with growth lagging peers and the public sector playing a dominant role. Despite strong macroeconomic fundamentals, including low public debt that continues to provide resilience against external shocks, economic growth has remained modest and uneven amid a weakening labor market, rising inflationary pressures, and heightened uncertainty stemming from the conflict in the Middle East. At the same time, the fiscal position has deteriorated, with the deficit projected to widen further under current policies because of structurally higher public spending and slower revenue growth. A gradual and well-targeted fiscal consolidation focused on containing current expenditure is needed to preserve fiscal buffers, stabilize public debt, and create space for productivity-enhancing public investment over the medium term. Meanwhile, the financial system has remained resilient despite episodes of elevated market stress. Nevertheless, increasing geopolitical uncertainty underscores the importance of continued vigilance in monitoring liquidity conditions, leverage, and funding risks across the financial system to safeguard macroeconomic and financial stability while supporting sustainable long-term economic growth.