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Luxembourg Economy


The economy of Luxembourg is largely dependent on the banking and steel sectors. Although Luxembourg in tourist literature is aptly called the "Green Heart of Europe", its pastoral land coexists with a highly industrialised and export-intensive economy. Luxembourg enjoys a degree of economic prosperity almost unique among industrialised democracies.

Luxembourg's stable, high-income economy features moderate growth, low inflation and low unemployment. The industrial sector, which was dominated until the 1960s by steel, has become increasingly more diversified to include chemicals, rubber and other products. During the past decades, growth in the financial sector has more than compensated for the decline in steel. Services, especially banking and other financial exports, account for the majority of economic output. Agriculture is based on small, family-owned farms.

Luxembourg has especially close trade and financial ties to Belgium and the Netherlands, and as a member of the EU it enjoys the advantages of the open European market. Luxembourg possesses the highest GDP per capita in the world (US$87,995 as of 2006), the eighteenth highest Human Development Index, and the fourth highest quality of life. As of March 2006, unemployment is 4.8% of the labour force. For the fiscal year of 2005 and 2006, Luxembourg has run a budget deficit for the first time in many years, mostly because of slower international economic growth.

Luxembourg offers a favourable climate to foreign investment. Successive governments have effectively attracted new investment in medium, light, and high-tech industry. Incentives cover taxes, construction, and plant equipment. U.S. firms are among the most prominent foreign investors, producing tires (Goodyear), chemicals (DuPont), glass (Guardian Industries), and a wide range of industrial equipment. The current value of U.S. direct investment is almost $1.5 billion, on a per capita basis – the highest level of U.S. direct investment outside of North America.

Luxembourg's trade account has run a persistent deficit over the last decade, but the country enjoys an overall balance-of-payment surplus, due to revenues from financial services. Government finances are strong, and budgets are normally in surplus.


Economy - overview
This stable, high-income economy – benefiting from its proximity to France, Belgium and Germany – features solid growth, low inflation, and low unemployment. The industrial sector, initially dominated by steel, has become increasingly diversified to include chemicals, rubber and other products. Growth in the financial sector, which now accounts for about 28% of GDP, has more than compensated for the decline in steel. Most banks are foreign-owned and have extensive foreign dealings. Agriculture is based on small family-owned farms. The economy depends on foreign and cross-border workers for about 60% of its labor force. Although Luxembourg, like all EU members, has suffered from the global economic slump, the country enjoys an extraordinarily high standard of living - GDP per capita ranks second in the world.

GDP (purchasing power parity)
$33.87 billion (2006 est.)

GDP (official exchange rate)
$34.53 billion (2006 est.)

GDP - real growth rate
6.2% (2006 est.)

GDP - per capita (PPP)
$71,400 (2006 est.)

GDP - composition by sector
agriculture: 1%
industry: 13%
services: 86% (2005 est.)

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