Luxembourg finds itself in 23rd position in the overall ranking of the IMD “world competitiveness yearbook 2024,” published by the International Institute for Management Development (IMD), marking its lowest ranking to date, highlighting a significant decline in competitiveness.
The world competitiveness yearbook 2024 displays several structural weaknesses in Luxembourg, issues that have been highlighted and reported by the Chamber of Commerce over the past years.
The IMD ranking methodology evaluates competitiveness using 336 indicators, blending statistical data and surveys of business leaders across 67 countries, through four pillars, economic performance, government efficiency, business efficiency, and infrastructure. It provides a comprehensive assessment of strengths and weaknesses, aiding policymakers in understanding the impact of their decisions on both input and output indicators over time.
Downward curve since 2021
Luxembourg’s decline has been steady since 2021 and notably accelerated since 2022, with a drop of 10 places in just 2 years, from 2022 to 2024. This decline can be attributed in part to a marked slowdown in economic activity. The year 2023 showed a growth rate of -1.1%, lower than that of the Eurozone, which was at 0.4%.
The Chamber of Commerce had previously reported that the Luxembourg economy was in recovery in 2021. In 2021, Luxembourg ranked 12th in the general rankings, then 13th in 2022, and lost seven places, falling to 20th in 2023. Our neighbours at the borders (2024): Belgium 18th, Germany 24th, and at France 31st place.
In comparison, other small states have demonstrated strong performance in the 2024 edition. Singapore leads the rankings in first place, followed by Switzerland (2nd), Denmark (3rd), and Ireland (4th). The continuous decline in Luxembourg’s competitiveness necessitates ambitious and swift reforms to address these challenges effectively.
In the red
Luxembourg’s economic competitiveness has significantly deteriorated, primarily due to a steep decline in its “economic performance” pillar. Luxembourg had achieved top rankings in previous years, notably first place in 2022, post-pandemic. However, it has since plummeted in the rankings, dropping from 38th in 2023 to 57th in 2024, marking a rapid decline of 56 places in just two years.
This decline stems largely from economic stagnation following the pandemic recovery, exacerbated by the inflation crisis. Despite maintaining strong positions in indicators like GDP per capita and employment rate, Luxembourg struggles with sluggish GDP growth and a sharp decrease in foreign direct investment flows, which currently rank the lowest among evaluated countries.
While facing these challenges, Luxembourg has shown notable improvement in international trade, ranking 5th in 2024 compared to 12th in the previous year. This achievement is attributed to strong active service exports. Looking forward, projections indicate a modest economic rebound in 2024, which will be critical in assessing Luxembourg’s resilience and potential for regaining competitiveness in subsequent editions of the yearbook.
Government allocative efficiency
Luxembourg maintains its 11th position in the “government efficiency” pillar, consistent with its 2023 ranking. Strong economic fundamentals such as a “triple-A credit rating,” low political instability risk, and sound public finances, are a positive benefit. However, Luxembourg’s challenges include a low ranking (27th) for its legal and regulatory framework, highlighting the need for regulatory simplification.
Luxembourg also struggles with tax policy, ranking poorly (45th) overall, particularly in tax revenue as a percentage of GDP and specific tax categories like personal income and capital taxes.
Compared to global benchmarks, Luxembourg requires 16.5 days to start a business, placing it 50th, far behind leading economies like Singapore (1.5 days), Denmark, and Estonia (both at 3.5 days). These disparities underscore the imperative for significant administrative reforms to promote Luxembourg’s competitiveness, aligning with recent governmental pledges to enhance efficiency and streamline regulatory processes.
Business efficiency
In 2024, Luxembourg faces challenges in maintaining its competitiveness, particularly evident in the “business efficiency” pillar. Despite a modest rise in 2023, a slip occurred to 26th place, marking a significant decline of 13 spots from 2021. Luxembourg excels in international experience of senior managers (9th) and attracting highly skilled personnel (13th), though there’s a notable drop in the latter category compared to the previous year.
Qualified labour shortage
The shortage of qualified labour continues to be a significant issue for companies, with Luxembourg ranking 53rd in this area. Many businesses must extend their recruitment efforts beyond the greater region and even the European Union to find the necessary talent. In 2023, entrepreneurs reported greater challenges in hiring experienced senior managers compared to the previous year.
Additionally, Luxembourg’s ranking on the “employee training” indicator has dropped from 16th to 30th.
Entrepreneurs fear of failures (EFoF)
Entrepreneurial spirit faces hurdles, with increased fear of failure among potential business starters and declining managerial agility. Gender diversity in leadership roles shows a mixed picture, while the proportion of women on corporate boards has improved (34.32% in 2023), women in management roles have declined, signalling a need for broader strategies to enhance both economic efficiency and diversity in Luxembourg’s business landscape.
Infrastructure
Luxembourg ranks 24th in the “infrastructure” pillar and has improved in “basic infrastructure” by 6 places, “technological infrastructure” by 2 places, “health and environment” by 1 place, and “education” by 1 place compared to the previous year. However, it has declined by 4 places in “scientific infrastructure,” particularly in R&D and the number of graduates in scientific and engineering fields. Luxembourg’s R&D expenditure as a percentage of GDP stands at 0.98%, significantly lower than countries like Germany and Belgium, which allocate over 3% of their GDP to R&D.
Findings and hurdles
In 2024, Luxembourg faces five key challenges to enhance its competitiveness, including balancing public finances, modernizing administrative processes, strengthening fiscal policies, supporting the construction sector, and promoting industrial sector development. These priorities, highlighted by the Chamber of Commerce and submitted to IMD, reflect critical concerns among Luxembourg’s businesses based on extensive surveys and direct feedback.
Meanwhile, European economies, heavily affected by the Ukraine war and energy price hikes, saw significant declines in the IMD 2024 rankings, with 18 out of 26 countries slipping, resulting in a cumulative loss of 48 positions for EU nations. Conversely, Asian economies, particularly Singapore and Hong Kong, showed notable resilience and progress, reclaiming top positions amidst global economic challenges.
Reversing the curve
Luxembourg faces imperative tasks in reversing its decline in competitiveness. These include applying fiscal measures, modernizing administrative processes through digitalization, and enhancing support for the construction and industrial sectors. Addressing these challenges is crucial not only for revitalizing economic growth but also for reclaiming position as a competitive global player.
