In its analysis, the agency cited Luxembourg’s 3.4% real GDP growth in 2017, which exceeded that of the Eurozone and is expected to reach 4% in 2018. It confirmed public debt levels of 22.9% for 2017, below the government’s 30% target.
“Luxembourg has significant capacity to face potential adverse shocks. Despite risks of financial market volatility, the country’s economic prospects remain robust,” it wrote in the report published on Friday.
Housing & household debt
The report author dedicated some time to the thorny issue of high demand versus short supply in Luxembourg’s housing market, noting house prices have risen 40% since 2010, “reaching high levels and affecting affordability”. The author reiterated the IMF’s conclusions that prices are in line with fundamentals while the European Central Bank had “identified some degree of overvaluation”.
The impact on household debt is still “moderate relative to the size of the economy”, household debt was recorded at 170% of disposable income. The report author concluded saying that any risks posed by these factors to financial stability were “contained”.
Concerning external shocks in the financial markets and the evolution of the international tax framework, the report author concluded the financial stability risks were limited. They wrote: “Strong economic fundamentals of Luxembourg and the economic diversification efforts led by the Government will help mitigate these possible pressures.”
Luxembourg finance minister Pierre Gramegna welcomed the report’s findings, putting it down to sound government policy.
“The government has durably rebalanced public finances, while conducting major reforms and keeping investment at a high level,” he said in a statement published on Friday.