Luxembourg needs to diversify economy, says OECD

(CS) An OECD economic report on Luxembourg has urged the country to diversify its economy to lower dependence on the financial sector, while also commenting on shortcomings in education and female labour participation.

The Economic Survey of Luxembourg was presented by OECD Secretary General Angel Gurría at Neimënster on Friday afternoon, with Finance Minister Pierre Gramegna also present.

While the survey concluded that “Luxembourg is one of the most prosperous countries in the OECD with very high levels of well-being,” it also made several recommendations on how to ensure that this prosperity endures.

These mainly relate to the “pivotal role” of the financial sector in the economy. In order for this key GDP contributor to remain healthy, the OECD suggests an increasing diversification of activities, as well as sound market regulation and comprehensive risk assessment.

However, not only the financial sector needs to diversify, but also Luxembourg’s economy as a whole.

Secretary General Gurría commented on Friday that “fostering growth in innovative industries other than the financial sector” had been identified as a “key challenge.”

Repair the roof while sun still shining

With structural unemployment growing and output growth slowing, Gurría said that a more diversified economy could help “reduce vulnerabilities.” With high labour costs, he added, Luxembourg’s future would likely lie in “higher value-added and skill-intensive activities.” Gurría did not, however, address how this would help reduce unemployment among mostly lower-qualified jobseekers.

The OECD official showed concern about decreasing enterprise research and development spending, while also recommending to the government to evaluate its R&D and cluster policies for more efficiency.

He urged stronger cooperation between the private sector and the University of Luxembourg together with other research institutions, both within the country and abroad. Additionally, Luxembourg’s high school fail-rate was highlighted in the report, calling on better monitoring of education quality.

Luxembourg was also urged to reduce disincentives for women to return to participate in the labour force. Only around 65 percent of working age women hold a job, below the European average. “This is a major drag on Luxembourg’s potential,” Gurría commented.

Another pressure was identified as age-related spending which is expected to increase by 5.25 percent points of GDP by 2030.

However, Gurría ended on a positive note: “I would like to congratulate the Luxembourg government for its effective steering of the national economy through a very difficult period,” he said. “ Luxembourg is one of the great success stories of the OECD. Prospects are bright. But as the US President John F. Kennedy liked to say ‘the time to repair the roof is when the sun is shining’.

“Reform is a constant challenge, a state of mind. Luxembourg has to keep making the necessary policy repairs to remain competitive, to diversify the economy and to promote more innovative and inclusive growth.”