Ranked 20th, five places lower than its previous lowest ranking and seven lower than last year’s, Luxembourg’s poor performance in this year’s World Competitiveness Yearbook (WCY), while worrying, is explainable in large part due to its slow post-pandemic recovery.
First published in 1989, the World Competitiveness Yearbook (WCY) is a comprehensive annual report on the competitiveness of countries published by the Swiss institute IMD.
While this year’s ranking for Luxembourg – its lowest ever by a margin – should be cause for concern, the Chamber of Commerce said that it’s mostly due to slow growth rates which in turn are the result of a resilient economy during the pandemic (the country’s GDP had only fallen by -0.8%, while the average for European Union countries was -5.6%).
However, it bears noting that this placement puts Luxembourg behind countries with which it has usually been competitive such as Switzerland, Ireland, The Netherlands, Singapore and Sweden. Furthermore, countries which have been on the rise this last decade: Belgium, Iceland, Saudi Arabia and even Australia have also gone ahead in the ranking.
A declining business climate
A further cause for concern, also highlighted in the Economic Barometer is the slow decline in the business climate, in particular declining investments. Business leaders who took part in the survey confirmed this trend by showing a decreased appetite for Luxembourg investments, pushing the country down from 8th to 12th place compared to last year.
To push against some of the issues highlighted in the report and summarised by the Chamber of Commerce, the Chamber has outlined the following five challenges to work towards this year.
- Lay the foundations for a “data-driven economy” with an appropriate regulatory framework guaranteeing security and competitiveness.
- Make working time legislation more flexible to allow case-by-case management in each company.
- Guarantee access to energy and raw materials at affordable prices for businesses and households.
- Carry out sustainable and coherent spatial planning on a national and cross-border scale.
- Reform the pension system to ensure its sustainability.
Looking ahead, the Chamber of Commerce maintains that while this ranking deserves “great attention […] it seems premature at this stage to speak of a major loss of competitiveness.” Indeed, when it comes to growth forecasts for the next years, Luxembourg is doing better than many of its neighbouring countries and inflation expectation rates are also supposedly lower.
For a full read on the Chamber’s analysis of the ranking, see here.
