Luxembourg has put an end to three years of falling rankings. Having dropped to 23rd place in the International Institute for Management Development (IMD) World Competitiveness Ranking in 2024, then climbed back to 20th place in 2025, the Grand Duchy has this year returned to the world’s top 15, rising to 14th place in the report published on Thursday 18 June. This rise is primarily down to an improvement in its economic performance. In this pillar, Luxembourg has risen from 42nd to 9th place globally in the space of a year, climbing 33 places. This progress has enabled it to overtake several developed economies, including Germany, Canada and Australia.

At first glance, the result may come as a surprise. With growth limited to 0.6% in 2025 and an unemployment rate of 6.5%, the Luxembourg economy does not paint the picture of a country in the midst of a boom. And whilst this growth is taking place under the current CSV-DP coalition – with prime minister Luc Frieden (CSV) often described as ‘pro-business’ – the IMD does not attribute this improvement to any specific government measures. The Institute does not, in fact, limit itself to GDP growth. Its economic performance indicator also takes into account foreign trade, international investment flows, employment and prices. On several of these criteria, particularly foreign direct investment, Luxembourg remains among the world’s best-performing economies, which explains most of its rise in the rankings.

Foreign direct investment flows

The World Competitiveness Ranking compares 70 economies each year using more than 300 statistical indicators and the results of surveys of business leaders. The assessment is based on four main pillars: economic performance, government efficiency, business efficiency and infrastructure. The 2026 ranking also confirms the strength of several key elements of the Luxembourg model.

The country ranks 9th in the world for government efficiency, 10th for business efficiency and 14th for infrastructure. It also has the second-highest GDP per capita in the world in terms of purchasing power parity, at $152,960. In the IMD methodology, ‘government effectiveness’ measures the state’s ability to support the economy’s competitiveness. It is based on criteria such as public finances, taxation, regulation, the quality of institutions and the confidence they inspire in businesses. Another key indicator is that Luxembourg remains the world’s leading economy in terms of foreign direct investment inflows relative to the size of its economy. In 2024, these flows accounted for 113.7% of GDP, a level unmatched among the 70 economies analysed by the IMD.

A stable and predictable framework

For the Chamber of commerce, the study’s institutional partner in Luxembourg, this result marks “a move away from the middle of the rankings” and a return to levels more in line with those seen before 2023. This improvement comes, however, against a backdrop of mixed economic performance. GDP growth reached just 0.6% in 2025, whilst the unemployment rate stood at 6.5%. Inflation has fallen to 2.5%, but businesses continue to grapple with high costs and a particularly uncertain international environment.

The IMD also believes that global competitiveness now depends less on the size of markets than on the quality of institutions and the ability of governments to provide a stable and predictable framework. “In an environment characterised by uncertainty, competitiveness increasingly depends on the credibility of institutions,” the study emphasises.

The report does not fail to highlight the challenges facing the Grand Duchy. The organisation calls for a return to sustainable growth, for labour, energy and regulatory costs to be kept in check, for pension reform to be accelerated, for economic diversification to be strengthened, and for a sufficient supply of talent to be ensured.