Medium-term projections (2026-2030)

The Luxembourg economy is expected to record real GDP growth of 1.2 per cent in 2026, before gradually accelerating from 2027 onwards. The recovery is expected to be accompanied by a gradual upturn in employment, with growth exceeding 2 per cent from 2028 onwards. Inflation is expected to remain broadly around 2 per cent in the medium term, although short-term risks now appear to be tilted to the upside against a backdrop of increased tensions in the energy markets. At the end of August, STATEC updated its medium-term macroeconomic projections. [1]

Table: Summary of macroeconomic forecasts for Luxembourg

1. International context: forecasts

The international assumptions used for this medium-term forecasting exercise are based on the scenarios from Oxford Economics (OE), received on 15 July 2026. Compared with the forecasts published in June 2026 in the Economic Outlook (NDC 1-2026), the growth assumption for the euro area in 2026 has been revised downwards, from 0.8 per cent to 0.6 per cent, before returning to an average rate of around 1.5 per cent over 2027–2030. These assumptions, finalised prior to the publication of the results for the second quarter for the euro area — where GDP grew by 0.4 per cent quarter-on-quarter, exceeding the consensus — do not yet factor in the resulting growth gains; in the absence of a further surge in energy prices, an upward revision of this forecast for 2026 therefore seems likely. Inflation in the eurozone is expected to be 2.0 per cent in 2026 and 2.1 per cent in 2027.

Globally, OE slightly revised its growth forecasts upwards in July 2026, to 2.5 per cent for global GDP in 2026 and 3.2 per cent in 2027 (+0.1 percentage points in both cases), following a fragile truce between the United States and Iran and a moderate recovery in maritime traffic through the Strait of Hormuz. This context has also led the OECD to revise downwards its oil price assumption; the assumption used for Brent in this exercise is US$83 per barrel in 2026 (compared with US$90 in the NDC 1-2026) and US$67 per barrel in 2027 (compared with US$70 previously). Global demand for services, following modest growth of 1.4 per cent in 2026, is expected to accelerate from 2027 onwards, growing by an average of 2.5 per cent per year for the remainder of the forecast period. In the equity markets, the Euro Stoxx 50 is expected to rise sharply in 2026 (+12.3 per cent), before posting significantly more modest growth for the remainder of the period[2] .

Risks

Uncertainty surrounding these forecasts remains high and hinges primarily on developments in the Middle East. OE has therefore quantified an alternative adverse scenario, ‘Escalation of the war in Iran’, in which the Strait of Hormuz would remain closed for an extended period, alternative shipping routes would in turn be threatened, and energy infrastructure would suffer increasing damage. In this scenario, the price of Brent would surge to an average of USD 163 per barrel in the third quarter of 2026[3] , before falling back as the strait gradually reopens in ^the fourth quarter; gas prices would also spike. Energy shortages would weigh on economic activity (deferral of certain household expenditure, partial shutdown of transport and freight) and strains on non-energy supply chains would exert broader pressures on costs and prices. Investors would demand a higher inflation risk premium, pushing yields on 10-year US Treasury bonds up by 75 basis points above the baseline scenario at the start of the shock, whilst global equity markets would fall by around 20 per cent compared with the baseline scenario in the third quarter. Fiscal support — particularly significant in the United States, with an estimated short-term stimulus effect of 0.5 percentage points of growth — would cushion the shock in the second half of 2026, before giving way to fiscal consolidation. Overall, global GDP growth would slow to 1.9 per cent in 2026 and 1.3 per cent in 2027 (compared with 2.5 per cent and 3.2 per cent in the baseline scenario), with recessions in the United States and other major advanced economies.

In addition to these risks identified by OE, there are factors of uncertainty not quantified in this exercise: droughts in Europe, combined with the El Niño climate phenomenon, pose an upside risk to food prices over the forecast horizon; and the direction of monetary policy will determine the trend in interest rate spreads in advanced economies. These spreads are already high due to increased competition for international financing, high levels of public debt and rising defence spending (particularly in Japan and Germany).

2. Economic outlook for Luxembourg

The revised annual national accounts, published by STATEC on 5 September 2025, show a slight upward revision of cumulative growth over the period 2023-2024, by +0.2 percentage points. Growth for 2023 is now estimated at +0.1%, compared with -0.7% in previous estimates. However, the forecast for 2024, initially based on quarterly accounts, has been revised downwards to +0.4%, compared with +1.0% previously.

Activity

Once the forecasts were finalised, the revised quarterly national accounts for 2024 and the first quarter of 2025, as well as the first estimate for the second quarter, were published. They reveal, on one side, less dynamic GDP growth in the second half of 2024, but on the other side a better first quarter of 2025 than that considered in the NDC 1-25 (0.7% instead of -1% quarter-on-quarter). The growth carry-over for 2025 is therefore revised to 0.2% (compared with -0.5% previously).

The 1% growth forecast for 2025, as set out in NDC 1-25, could therefore be confirmed, provided that the second half of the year shows average quarterly growth of 1%.

For 2026, an improvement in the performance of the financial sector would allow to achieve GDP growth at 2.0%. Over the period 2027-2029, STATEC anticipates average growth of 2.4%, mainly driven by the private sector. Although this evolution is stronger than that forecast for 2025-2026, it represents a downward revision from previous projections, which predicted growth of 2.7% between 2025 and 2027.

This revision reflects the new trajectory of potential growth. For around six years, the potential GDP of Luxembourg’s economy has been regularly revised downwards. It is expected to be below 2% for the years 2025-2026, but should gradually adjust upwards to reach 2.1% at the end of the forecast period. The negative output gap is expected to close only very slowly over the forecast period.

Labour market

Since 2022, employment growth in Luxembourg has slowed significantly and stabilised at a historically low level between 2024 and 2025, particularly in the market sectors. Although the outlook improved slightly in industry and construction in the second quarter of 2025, employment growth for the year as a whole is expected to be moderate at 1%, driven mainly by the public sector. The unemployment rate is expected to remain high, at around 6%.

From 2026 onwards, in line with the expected economic recovery, STATEC anticipates a moderate strengthening of employment growth (+1.5%) accompanied by a slight decline in the unemployment rate (from 6% to 5.9%), with increased support from the market sector.

At the end of the forecast period, employment growth is expected to reach 1.9%, while the unemployment rate is expected to fall gradually to 5.1%.

Inflation/wages

The automatic indexation of wages in May 2025 contributed to a sharp rise in service prices. Inflation is expected to continue to rise in the coming months, driven by the strengthening of positive base effects related to energy at the end of the year. Higher-than-expected inflation in the second quarter of 2025 has led STATEC to raise its annual forecast to 2.1%, up from 1.9% previously.

In 2026, the expected fall in oil prices, combined with government measures on electricity tariffs (corresponding to a 9% reduction over the year as a whole), should lead to a decrease in energy prices of nearly 7%. This development would help bring overall inflation down to 1.4%. Services inflation is estimated at 2.3% in 2025 and 2.5% in 2026, while food inflation is expected to rise from 2.0% in 2025 to 2.3% in 2026. The next wage indexation is scheduled for the third quarter of 2026.

In the medium term, inflation is expected to stabilise at around 2%, in line with the trend observed in the eurozone. The spacing of index brackets would limit wage increases directly linked to price developments (as was the case in 2023 with three triggered index brackets), thereby reducing potential second-round effects on inflation.

In addition, the temporary reduction in employer contributions helped to contain compensation per employee growth in 2024. However, their normalisation in 2025 is expected to support an increase, with an anticipated rise of 3.3% this year.

From 2026 onwards, compensation per employee is expected to grow at a more moderate pace of around +2.3% per year, before rising slightly to +2.5% at the end of the forecast period.

Fuel sales / CO₂ emissions

CO₂ emissions have been falling for several years, mainly due to declining fuel sales. This trend has accelerated during recent crises (COVID-19, soaring energy prices) before easing slightly in 2023 and 2024.

After a 2% decrease in 2023 and 3% in 2024 (compared to an average annual decrease of 8% between 2019 and 2023), fuel sales are expected to decline further by 4% in 2025 and 5% in 2026. These forecasts are based on an unchanged policy assumption and take into account, in particular, the gradual increase of the CO₂ tax in Luxembourg. The transition to electric and hybrid vehicles is expected to accentuate this trend, also leading to a decline in tax revenues from fuel excise duties.

In this context, greenhouse gas emissions are expected to follow a similar trajectory, with an estimated decline of 2.6% in 2025 and 3.4% in 2026. However, the introduction of the ETS2 emissions trading system, scheduled for 2027, introduces uncertainties regarding the evolution of fossil fuel prices, both in Luxembourg and abroad, and therefore the future trajectory of CO₂ emissions.

[1] These forecasts are a key element in the process of drawing up the State Budget and have been forwarded to the Ministry of Finance.

[2] This is a technical assumption given the volatility of the stock markets.

[3] This price level (163 USD/barrel) is significantly higher than recent figures: the average price of Brent in the third quarter of 2026 stood at 96 USD/barrel.