Luxembourg: Country and Foreign Investment
Economy and Currency
The Luxembourg economy is stable and prosperous, with unemployment at 6.1% (June 2012). There has been a gradual and painful replacement by financial services as the engine of the economy.
The iron ore in Luxembourg was discovered in 1850, and an important steel industry was built up which dominated the economy for much of the 20th century. Despite shedding labour in the 1980s, the industry remains by far the largest employer in the country, and accounts for 25% of export earnings. However, the US protectionist tariffs of up to 30% imposed on steel imports in April 2002 had a severe effect.
Since the war, the Government has made determined and largely successful efforts to diversify the economy, although as in most developed countries services have tended to take over from industrial production. Growth in the financial sector, which now accounts for about 28% of GDP, has more than compensated for the decline in steel.
The financial services sector has boomed, helped along by old and new tax breaks. There are more than 12,000 Holding Companies in Luxembourg, along with nearly 4,000 Investment Funds and 143 banks, at the time of writing. There is also a substantial Eurobond issuance sector.
The country's small size and its position have naturally led it into close economic co-operation with its neighbours. There has been a close economic union with Belgium since 1921, and after the Second World War Benelux was formed by bringing in the Netherlands; this was the first step towards creation of the EU.
Luxembourg is the second richest country in the world, with GDP per head at purchasing power parity for 2012 estimated at USD81,100. GDP in 2012 was USD42.92bn.
Growth of 0.1% was estimated for 2012, after a 1.7% estimate for 2011.