“Having climbed to the top of the ‘Economic Performance’ pillar in the 2022 ranking, Luxembourg has fallen to 38th place this year. It is by far the country that suffers the biggest drop in its ranking in this pillar, where Ireland takes first place. In particular, the country is paying the price for a level of growth that is lower than that of its competitors in 2022 (61st out of 64),” says the Chamber of Commerce in a press release outlining the main findings of the World Competitiveness Yearbook published by the International Institute for Management Development.

“However, this under-performance needs to be qualified, as this weak annual growth can also be explained by the resilience shown by the Luxembourg economy during the pandemic. By 2020, the country’s GDP had shrunk by just 0.8%, compared with an average of -5.6% across the European Union, according to the European Commission. In 2021, it had recorded a growth rate close to that of the European countries (5.1% compared with 5.4%), but in 2022--the reference year for the ranking--the country saw the ‘rebound’ effect fade (+1.5%) while the other European economies were still in a ‘catch-up’ phase (+3.5%).”

Labour costs, talent, housing: the infernal trio

The country has lost seven places since the last ranking. More importantly, it has lost ground compared to the the economies it has always been close to (Switzerland, Ireland, the Netherlands, Singapore and Sweden). Luxembourg has been overtaken by countries (Belgium, Iceland, Saudi Arabia, the Czech Republic and Australia) that have not been more competitive than it over the last decade.

Denmark is still the most competitive country in the world, ahead of Ireland, Switzerland, Singapore and the Netherlands.

Unsurprisingly, the situation is worsening because of the ever-increasing cost of labour, with more and more companies considering relocating their teams. 70% of the workforce now comes from abroad, ranking third in the world behind Qatar and the United Arab Emirates. “Past trends continue, namely the lack of available digital skills (34th) and the difficulty of finding qualified engineers (52nd). Positioned behind Ireland and ahead of Canada, the country remains in the top 10 for its ability to attract highly qualified personnel. However, its continuous decline in performance since 2020 (-5 places between 2020 and 2023) must be halted as soon as possible, to avoid future setbacks and harmful effects on the Luxembourg economy,” said the Chamber of Commerce.

The country is also slipping in the ‘Prices’ sub-pillar, falling to 55th place out of 64: “It is 33rd for consumer price inflation and 40th for the cost of living index. But it is the soaring property prices that are contributing to Luxembourg’s plunge. The country ranks 53rd for the cost of renting a flat and 51st for the cost of renting office space.”

This story was first published in French on . It has been translated and edited for Delano.