Luxembourg, the only Grand Duchy in the world, is a landlocked country in northwestern Europe surrounded by Belgium, France, and Germany. Despite its small landmass and small population (640,000), Luxembourg is the third-wealthiest country in the world based on Gross Domestic Product (GDP) per capita.
Luxembourg’s economy proved resilient during the stresses of the last few years including COVID disruptions and Russia’s ongoing war in Ukraine, with real GDP declining by only 1.3 percent during 2020 due to COVID shutdowns, but rebounding 6.9% in 2021, and 1.6% in 2022. This resilience was supported by a well-performing financial sector able to adjust quickly to remote work, and a financially stable government supported by a triple-A credit rating, and able to fund a large economic stimulus package equivalent to 18.5 percent of GDP.
Luxembourg is a major global financial center thanks to the growth of the investment fund sector through the launch and development of cross-border funds in the 1990s, and in more recent years through the growth of alternative asset classes such as private equity and alternative assets. Luxembourg is the world’s second largest investment fund asset domicile, after only the United States, with over $5 trillion of assets in custody at local financial institutions. The dependence on revenues relating to the financial sector for about one-third of GDP however, means that financial market volatility represents a major risk for the economy.
Luxembourg is consistently ranked as one of the world’s most open and transparent economies and has no restrictions on foreign ownership. It is also consistently ranked as one of the world’s most competitive and least-corrupt economies.
Over the past decade, Luxembourg has adopted major regulatory reforms to counter money-laundering, terrorist-financing, and tax evasion.
The Government of Luxembourg actively supports the development of new sectors to diversify the country’s economy, given the dominance of the financial sector. Target sectors include space, logistics, and information technology, including financial technology and biomedicine.
Luxembourg has positioned itself as “the gateway to Europe” to establish European company headquarters operations by virtue of its central European location and road, railway, and air connectivity.
It has also benefited from Brexit, with over 50 insurers, asset managers and banking institutions re-locating their EU headquarters to Luxembourg or transferring a significant part of their activity to the country.
Luxembourg is actively seeking logistics companies to expand the new logistics hub at Luxembourg Airport, home to Cargolux, Europe’s largest all cargo airline.
Luxembourg is also seeking ICT companies to use the existing high-security, state-of-the-art datacenters, affording high-speed internet connectivity to major international data hubs.
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Financial Intelligence Unit (FIU-LUX)
