Luxembourg Economic Review

Introduction

General Data[1]

Population

494,000

Population Growth Rate

2.1%

Religions

Predominantly Roman Catholic with very few Protestants, Jews, Muslims

Government System

Constitutional Monarchy

Luxembourg, the smallest member-nation of the European Union, is situated between France, Germany, and Belgium in the heart of Europe. Boasting the EU’s highest standards of living and a record of steady economic growth since 1985, Luxembourg’s economy presents a prosperous and diversified business climate. While growth rates have slowed in the last couple of years, the Luxembourg economy continues to outperform its neighbours. The government is pro-business.

Though the iron and steel sectors were pivotal in Luxembourg’s phenomenal economic growth in the 1950s, 1960s and 1970s, the country has undergone major restructuring in the past two decades. As a result, it is now one of the world’s biggest financial centres and sophisticated service-oriented economies.

Luxembourg maintains five thriving sectors including financial services, cargo shipping, steel, satellite transmission, and television and radio broadcasting. A favourable tax environment and bank-privacy legislation have enabled the financial services sector, specifically banking and insurance, to become Luxembourg’s growth leader. Home to more than 150 banks, Luxembourg holds the highest banking concentration in the European Union. The government is also highly supportive of diversification into the high tech, information and communications industries. To that end, it promotes increasing access to, and use of the Internet and is committed to developing the requisite infrastructure. With its comparatively low VAT rates

(15% ), Luxembourg has begun to attract businesses that deliver services electronically.

Economic Outlook

Major Figures[2]

EUR

2004

2005

2006

2007

2008

GDP

( Mio EUR)

25.663,5

30.282,3

34.150,4

37.465,8

39.348,4

GDP Real Growth Rate

2,3%

4,5%

4%

6,2%

5%

GDP per capita

56.828

65.659

72.783

78.677

81.331

Inflation

2,2%

2,5%

2,7%

2,3%

3,4%

Unemployment

4,2%

4,7%

4,5%

4,4%

4,4%

Investment Incentives

Since the end of World War II, Luxembourg has undertaken measures to attract foreign investment from both large multinationals and smaller companies. The government offers incentives, including tax rebates and credit assistance, to foreign investors desiring to set up subsidiaries in Luxembourg. Financial support may take the form of capital grants or medium and long-term loans privy to favourable conditions by the National Credit and Investment Corporation.

To reduce its reliance on financial services sector, the government of Luxembourg is looking to attract foreign investment in a range of fields, including information technology and research. Additionally, Luxembourg offers investors an extensive infrastructure network, a tailor-made investment incentive program, easy access to its government’s decision markers, and a stable political and economic environment.

The government also dedicates public funds to the development of industrial parks for investors through its industrial zone program. The government can make premium land in one of the ten national industrial parks available for this purpose.

International Trade

General Figures[3]

Million EUR

2005

2006

2007

2008

Export

47.171

57.676

66.411

67.997

Import

39.464

46.940

53.867

55.197

Balance

7.707

10.736

12.544

12.800

Luxembourg conducts the majority of its trade with EU-countries, in particular with its immediate neighbours France, Belgium and Germany.

Israel-Luxembourg Trade Relations

The trade balance between Israel and Luxembourg shows a surplus of $ 153,6 million in favour of Luxembourg in 2008. Israeli exports to Luxembourg reached $ 20,4 million while Israeli imports from Luxembourg reached $ 174 million. Those figures represent respectively an annual increase of 33,3 % on the side of the exports and an annual increase of almost 90% on the side of the imports[4]. Exchanges between Luxembourg and Israel stay low.

The most important sector regarding Israeli exports to Luxembourg is machinery, electrical equipment, image and sound recorders, and their parts (48%). The other sectors, part of the Israeli exports to Luxembourg, are: plastic, rubber and articles thereof; pearls, precious stones, metals and articles thereof.

The most important sectors regarding Israeli imports from Luxembourg are:

- Base metals & articles thereof ( 69.4%)

- Prepared foodstuffs, beverage, tobacco ( 22.6%)

Some of the Israeli biggest banks have subsidiaries in Luxembourg including Bank Hapoalim and Bank Leumi.

Two leading financial institutions from Luxembourg invested in the Israeli Millenium Materials Technologies Funds ( MMT Funds). The SNCI ( Société Nationale de Credit et d’Investissment ) invested Eur 1 million and BGL Investment Partners invested Eur 2 million.

An agreement on double taxation has been signed between Israel and Luxembourg on December 13^th 2004.
Website links in Luxembourg

· General portal

www.luxembourg.lu

· Government portal

www.gouvernement.lu

· Central Service for Statistics & Economic Studies

www.statec.lu

· Ministry of Economy & Foreign Trade

www.eco.public.lu

· Chamber of Commerce

www.cc.lu

· Phone Directory