Based on the gross operating margin (GOM), Luxembourg consistently ranks near the bottom of the European league table. This fuels doubts about the competitiveness of local businesses. But this interpretation is misleading. “Luxembourg ranks among the least profitable European economies when the gross operating margin is used,” notes Statec in a study published on Thursday 7 May.
Because, in reality, the profits are very much there. Gross operating surplus jumped by more than 50% between 2008 and 2020. This is a robust trend that contrasts sharply with the image of an unprofitable economy. The problem lies not in performance, but in how it is measured. The GOM ratio compares profits to turnover, a significant bias in an economy where certain activities artificially inflate volumes.
This is where the Luxembourg model falls short in comparisons. The weight of trading—these commercial, subcontracting and distribution activities—is exceptional. It still accounts for nearly half of companies’ total turnover, one of the highest levels in Europe. However, these activities generate a great deal of volume but relatively little added value, which automatically drags down profitability ratios.
Prioritise the profit margin
The link is clear and well-documented: the higher the share of trade, the lower the GOM. And this effect is particularly pronounced in Luxembourg. In other words, the country is penalised by its specialisation. Where other economies appear more profitable, it is often because their sectoral structure is different, not necessarily because their companies perform better.
This distortion is also evident at the corporate level. Large companies, which feature heavily in these high-volume sectors, account for the bulk of profits in absolute terms, but report lower profit margins. Conversely, small businesses generate proportionally higher profitability. This disparity serves as a reminder that Luxembourg’s economic fabric cannot be understood by looking at a single average.
Another factor stands out clearly: productivity. The higher it is, the better the profitability. This is a classic relationship, but one that is particularly pronounced here. Companies capable of generating greater value per employee come out on top, regardless of their sector.
Ultimately, it is the entire framework for interpretation that is being called into question. The study argues in favour of prioritising the profit margin, which relates profits to value added rather than to turnover. And when this is done, Luxembourg moves up the rankings. “Using the profit margin instead of the GOM improves Luxembourg’s relative position,” insists Statec. The message is crystal clear: the country is no less profitable; it is simply being measured incorrectly. Behind a misleading indicator, the Luxembourg economy continues to generate substantial profits. You just have to look in the right place.
