What if we were to admit that we are no longer facing a simple temporary crisis, but multiple instabilities that seem to be taking root on several fronts? Historically, crises and instabilities have followed one another, but now their effects and collateral impacts are increasingly interconnected and visible on a wider, even global, scale.
On the geopolitical front, first of all. In February, it will be three years since Russia launched its military aggression in Ukraine, provoking a human tragedy and major economic consequences in Europe and around the world. Not only has the conflict dragged on, it has also upset the balance of power. The sending of North Korean soldiers to the Russian-Ukrainian front is a case in point. New geopolitical alliances and interests are emerging. Other areas of geopolitical tension are destabilising factors: the Israeli-Palestinian conflict, the situation in Syria, tensions in the China Sea and the human tragedies caused by migratory flows.
Secondly, on the demographic front. As a result of longer life expectancy and a falling birth rate, some regions of the world are ageing. We are familiar with this phenomenon in Europe. By 2100, the population of working age (15-64) will represent just 54.8% of the total population, compared with 64.1% in 2021. But the ageing process is even more rapid and spectacular in China. In the "factory of the world,” the population aged 25-64 is set to fall from 800m in 2025 to less than 300m in 2100. Meanwhile, the African continent will experience a veritable demographic explosion, with its population rising from 1.5bn to 3.8bn . These dynamics, with their potential for future instability, invite us to rethink our production models, our social mechanisms, the nature of our international trade and our migration and integration policies.
On the environmental front, of course. Every year, climate change produces new disasters, leading to migration, humanitarian crises, new social inequalities and pressure on natural resources. Yet international political cooperation and the coordination of measures to limit our CO2 missions and thus curb global warming appear to be very vulnerable, and the efforts involved are poorly distributed on a global scale. In this respect, the return to power of Donald Trump, who had already denounced the Paris Agreement in 2017, does not hold out any hope of improvement. As for energy, an essential resource for the development of its industry, Europe is in a particularly poor position when it comes to access to competitively priced energy, putting businesses (and also citizens) on the old continent in a tricky situation.
On the economic and financial front, of course. World trade has been disrupted and slowed considerably, with a decoupling between world GDP and the volume of trade observed since 2022. The financial markets seem to have 'integrated' these instabilities since the shock of the health crisis. The United States is benefiting from the speculative euphoria in the financial markets over the growth prospects for the tech sector. It remains to be seen how President-elect Trump's announcements of new tariffs will affect international trade. Europe is bearing the full brunt of its industry's loss of competitiveness (linked, among other things, to a lag in innovation and mistaken policy choices in energy production). China is showing signs of doubts about the viability of its growth model, due in particular to its production overcapacity and the high number of loss-making or unprofitable companies in the industrial sector (28% of companies in 2023).
Political turbulence threatens Europe
Against this backdrop of instability and complexity, populism is flourishing and gaining ground around the world. Added to this are the political crises affecting France and Germany. At a time when Europe needs an ambitious political, economic and energy revival, these deadlocked situations are weakening it considerably at the worst possible moment: growth in the eurozone is unlikely to exceed 0.8% in 2024 and 1.3% in 2025, according to the IMF, a far cry from the levels expected in the United States (2.8% in 2024 and 2.2% in 2025). When the ground trembles and instability reigns, we need to move forward by setting a horizon. At European level, that line is clear: it is the restoration of competitiveness that is the main thrust of the Draghi and Letta reports.
At national level, the Government's action must be in line with this dynamic, because our economic performance and our position in international rankings on competitiveness and in terms of profitability and productivity are disappointing. Statec now estimates that Luxembourg's GDP growth should be limited to 0.5% in 2024, well below its previous estimate of 1.5%. Statec has also lowered its growth forecast for 2025 from 2.7% to 2.5%. This weaker-than-expected growth will inevitably have consequences for employment, public finances and social security balances. A number of positive steps have already been taken by the Government to relaunch the economy and restore our competitiveness, and it is vital that we continue in this direction, with an accelerated pace in 2025.
Strengthening our transformation capabilities
The challenge? Protecting ourselves against the threats posed by an environment marked by all kinds of instabilities. In this context, we need to strengthen our business model and accelerate economic diversification to support this resilience effort.
Firstly, through ongoing support for innovation, which can strengthen our capacity for transformation as the main driver of productivity and profitability for our businesses. Indeed, as Schumpeter taught us, "economic development does not take place through the accumulation of capital, but through innovation". This support is all the more crucial at a time when we need to successfully implement artificial intelligence (AI) in our economy. AI represents a huge opportunity for economic diversification, in the same way as defence, in line with our commitments to Nato.
Secondly, by deploying administrative simplification. The activity of our businesses is still hampered by bureaucratic red tape that weighs on costs and the ability to invest and recruit. The Chamber of Commerce has launched a wide-ranging consultation in the field, as close as possible to businesses, which will result in very concrete proposals to be submitted to the Government in 2025. Let's hope that the first announcements by the new European Commission to regulate less and better will be followed by concrete simplification actions in favour of European citizens and businesses.
Thirdly, by ensuring the sustainability of its growth and remaining attractive to cross-border commuters and developing new strategies to attract labour from other European countries and other regions. To achieve this, it will be necessary to build more housing and improve the mobility infrastructure that connects Luxembourg with the territories of its cross-border metropolitan area. The stagnation, or even decline, in the number of cross-border workers from Belgium (+0.22% over one year in the second quarter of 2024) and Germany (-0.04%) should alert us and encourage us to take action.
Reliability and agility: sources of confidence in and attractiveness of the Grand Duchy
In the current uncertain environment, Luxembourg can pride itself on political stability, which confers a degree of predictability on socio-economic players. Furthermore, the entrepreneurial and financial ecosystem is characterised by relative reliability and agility at international level, which gives the country an advantage over its direct neighbours.
Only nine countries in the world still enjoy the top rating from the three main rating agencies (Moody's, S&P and Fitch). This is an increasingly closed circle in which the Grand Duchy must retain its place. The Government's budgetary guidelines will contribute to this in the short term. But in the long term, without reforms and in the absence of effective transformations, the trajectory of our social spending will clearly become unsustainable and will compromise investor confidence. The Government has launched a consultation on the future of our pension system. On this point, as on others, it is essential to take ambitious and courageous decisions.
In this unstable world, our country must turn its many challenges into opportunities. The last two editions of the Chamber of Commerce's economic barometer show a cautious rise in business confidence in the future of the Luxembourg economy. This confidence, which had fallen to 64% in the second half of 2023, has now risen to 69%. This is good news--although it needs to be confirmed--for our outward-looking economy, which is dependent on international trade. As Goethe wrote, "If you have confidence in yourself, you inspire confidence in others." is Director General of the and we are publishing his post, with his permission.
[ Source: UN.
[ The "magnificent Seven" (Microsoft, Nvidia, Google, Meta, Amazon, Apple and Tesla) account for more than 30% of the total value of the S&P500.
[ Source: National Bureau of Statistics of China.
[ Source: Statec.