Two and a half years after the Frieden government took office, how is the economy faring?
Growth? What growth?
After three years of near-stagnation, the Luxembourg economy has been “showing encouraging signs of recovery since the start of 2025”, according to Statec in its latest economic report, which forecasts a gradual acceleration in economic activity to +2.7% by 2027. This growth rate remains lower than that seen during the previous decade. Furthermore, this trajectory remains vulnerable to international geopolitical uncertainties, particularly the trade and monetary policies of the United States… and the Iranian crisis.
“Fears of a lasting shock to energy prices naturally lead to concerns about much higher-than-expected inflation (fuel prices at the pump have already taken a significant hit) and a deterioration in the economic outlook,” states Statec in its March “Conjoncture Flash”. As part of the national social dialogue for the 2026 European Semester, the Ministers for the Economy 
During our interview with the Prime Minister in issue 266 of Paperjam, he emphasised: ‘Economic growth, though modest, is back, whereas when we began (our government’s work), we were facing a recession and stagnation. We saw half a percentage point of growth in 2024 and 1% in 2025. We will do everything we can to maintain this momentum, because growth means jobs.” 
Changes in the economic climate. (Source: Statec)
1,9%
Such as the economy’s new growth potential, according to Statec. This figure is well below the average rate for the previous decade, which stood at 2.9%.
Could falling productivity cause the economy to stall?
Productivity and competitiveness at a standstill
In 2025, Luxembourg is ranked 20th among the world’s most competitive economies according to the IMD World Competitiveness Ranking. This is three places higher than in 2024, but still far from previous levels.
Among the criteria used to determine the ranking, there is one area in which Luxembourg excels: productivity. But for how much longer?
In its latest economic report, Statec highlights what it describes as a long-term challenge for the economy: the decline in productivity. Hourly productivity in the non-financial market sectors has been falling by an average of around 2% per year since 2020, whereas it grew by 1.1% per year between 2000 and 2019, notes the Statistical Office.
Paradoxically, according to the latest report from the National Productivity Council (CNP), Luxembourg maintains an exceptionally high level of labour productivity, with a GDP of USD 134.5 per hour worked. This places Luxembourg well ahead of Belgium (USD 105.2), Germany (USD 98.4) and France (USD 90.9). This performance is largely due to the predominant role of the financial and insurance sectors in the economy.
This flattering picture masks a worrying reality: the Grand Duchy’s position is eroding, with productivity growth having stagnated, or even declined, since 2010. A detailed analysis by sector reveals divergent trends and a mixed picture across different sectors.
The financial sector, although highly productive, has seen its productivity decline by an average of 1.2% per year between 2010 and 2024, a trend that is accelerating. The construction sector has suffered a sharp decline in productivity since 2020 and now ranks at the bottom of the European league table. In contrast, the manufacturing industry has managed to maintain positive growth thanks to technological advances and innovation.
Market services, which account for 85% of total output, have shown very modest growth in total factor productivity, at 0.14% per year over the long term. According to the CNP, to revive its productivity growth momentum, Luxembourg must focus on two key areas: artificial intelligence and administrative simplification.
World Competitiveness Yearbook de l’International Institute for Management Development (IMD). (Source: IMD)
2,9%
For example, productivity in Luxembourg has fallen over the last 20 years, whereas it has risen by an average of 21.1% across the EU.
Can artificial intelligence boost productivity in Luxembourg?
Artificial intelligence: the 2% solution
According to the National Productivity Council (CNP), one of the solutions to falling productivity lies in the rapid adoption of artificial intelligence. According to its simulations, widespread adoption of AI could generate a 2% jump in productivity, double the European average. This high potential is due to the structure of the Luxembourg economy, which is heavily reliant on financial services (a sector highly exposed to AI), and to high wages that encourage employers to adopt this technology.
The country is already well positioned, with 34% of resident companies using some form of AI, placing it fifth in the European Union. The CNP notes concrete progress, such as the adoption in May 2025 of the ‘Accelerating Digital Sovereignty’ initiative, which aims to position Luxembourg as a European leader through three strategic pillars: AI, data and quantum technologies. The aim is to achieve sustainable technological sovereignty, trustworthy innovation and enhanced connectivity, building on national infrastructure. At its launch, the Minister for the Economy, Lex Delles, announced that €3 billion would be invested in digital technology by 2030.
The government has also introduced two new ‘SME packages’ focused on AI and cybersecurity to support small businesses. It has also launched the Luxembourg AI Factory to assist businesses, start-ups and public authorities in adopting AI. This one-stop shop, managed by Luxinnovation, reports that 150 companies have received support through the scheme, the vast majority of which are SMEs.
Also in 2025, the government invested in the MeluXina-AI supercomputer, which is optimised for AI and is expected to become operational by the end of the year.
A veritable extravaganza of activity and resources. On the downside, however, the CNP regrets that government measures often lack quantifiable targets or ex-post evaluations to gauge their actual impact on national productivity.
90%
Number of workers in Luxembourg at risk from AI. Whilst 55% of employees would see their work ‘augmented’ by these technologies, 14% of jobs (around 64,000) are at risk of automation and therefore of being lost, mainly in the administrative and retail sectors.
Why is administrative simplification anything but simple?
Administrative simplification still before the Council of State
The National Productivity Council sees administrative simplification as “a key driver for reducing the burden on businesses and boosting productivity growth”. The government agrees. The central principle is ‘Once only’.
As the digitalisation of public services progresses, the aim is to make life easier for citizens and businesses by preventing government departments from requesting information that has already been provided, thereby forcing the State, ministries and local authorities to share their data, thus reducing the administrative burden. The principle is simple, but its implementation is not.
Bill 8395 enshrining this principle was introduced in the Chamber of Deputies on 11 June 2024, and was subsequently split into two parts in June 2025, with the ‘Once Only’ principle assigned to parliamentary bill 8395B, whilst parliamentary bill 8395A deals with the transposition of European provisions concerning the implementation of the Data Governance Act. A bill was passed on 18 December 2025.
As for file 8395A, it has stalled. Legally speaking. But on the ground, things are gradually falling into place. The government has extended the principle that silence implies consent, accompanied by defined processing times, particularly in the construction sector. Another initiative is the pre-filled tax return sent by the Direct Tax Administration (ACD) to taxpayers in straightforward tax situations (employees/pensioners). For the time being, it does not take all tax deductions into account, an issue the ACD is currently working on.
The government has also just announced the launch of the Cosmos platform, which will be rolled out gradually from January 2027 and is set to replace the e-Mint portal – a platform for communication between the Ministry of the Interior and local authorities – with the ‘once-only’ principle at the heart of the system.
Level of digitalisation of public services. (Source: European Commission – DESI Study, Digital Economy and Society Index)
89,4%
This is reflected in Luxembourg’s score in the European Commission’s eGovernment Benchmark 2025. This places the country in second place, demonstrating the progress made in the digital transformation of public services. The European average is 74.5%.
This article was written for the June issue of Paperjam magazine, published on 20 May. The content is produced exclusively for the magazine. It is published on the website to contribute to Paperjam’s comprehensive archive. Click on this link to subscribe to the magazine.
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