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This OECD Economic Survey of Luxembourg examines recent economic developments, policies and prospects. Special chapters cover of the financial sector and diversification of the economy.

En 2009, le Comité de la politique à l’égard des consommateurs de l’OCDE a entrepris la révision des Lignes directrices de 1999 régissant la protection des consommateurs dans le contexte du commerce électronique. Dans le cadre de cet examen, il a exploré, dans un rapport analytique, les avantages et les difficultés, pour les consommateurs, d’acquérir des produits de contenu numérique intangibles. À la lumière de l’analyse réalisée, le Comité a mis au point les présentes orientations, qu’il a adoptées le 15 septembre 2014 et qu’il a recommandé de porter à la connaissance du public.This Annex reviews policy recommendations from previous Surveys. They cover the following areas: public finance, subsidies, tax system, education, labour market, product and service markets (including public enterprises) financial reform, and infrastructure. Each recommendation is followed by a note of actions taken since the 2012 Survey. Recommendations that are new in this Survey are listed in the relevant chapter.

Over the last two and a half decades, Luxembourg’s financial sector emerged as a leading international hub for asset management and investment funds and became a key contributor to growth. Diversification into new areas of financial asset management is continuing. However, changing financial market regulation in Europe, increased international transparency requirements for banking and heightened international competition pose challenges. Moreover, the financial sector has reached a size where its contribution to the economy’s overall growth might diminish.Maintaining sound framework conditions is important for further diversification in the financial sector, building on Luxembourg’s existing comparative advantage and investors’ trust in its economic stability. Regulators should ensure financial intermediaries maintain strong capital ratios to address potential financial market shocks from abroad and real estate risks in the domestic economy. Assessment of systemic risks should be based on a framework that accounts for the various linkages between the banks and the other relevant financial market actors, notably investment funds. Given that the bulk of the banks in Luxembourg are affiliates of foreign bank groups, the authorities should seek clear procedures that govern the (cross-border) resolution of large banks in bad times. Moreover, implementation of the remaining steps in upgrading the tax transparency regulations Luxembourg has committed to can increase incentives for banks to further refine their business models, benefitting Luxembourg’s financial sector in the medium term.

This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.

Developing activities in areas other than finance would help to sustain growth and deal with the declining potential output and trend productivity growth that Luxembourg’s economy is facing. Given the relatively high labour costs, Luxembourg’s future comparative advantages are likely to lie in higher value-added and skill intensive activities. Further development of Luxembourg’s high living standards thus requires strengthening the economy’s growth potential via further diversification of activity in high value-added sectors.Stepping up investment in knowledge based capital and enterprise innovation can help Luxembourg to maintain and further develop comparative advantages in high value-added activities. The government is promoting the formation of enterprise clusters by providing networking, infrastructure investment and financial support for research and development. To enhance the efficiency of the government’s policy, high priority should be given to outcome-oriented evaluation. This is required to ensure that costly infrastructure investment yields good results. Further efforts should be made to create synergies via cross-border initiatives, in particular with respect to research. Experience in other countries points to the importance of regulatory framework conditions in product and labour markets to spur enterprise dynamics. Regulation in professional services can be made more competition friendly, and impediments to labour force participation, notably for women, can be reduced. Productivity and innovation are also affected by the effectiveness of the secondary education system to produce skilled workers, which in Luxembourg is hampered by high repetition rates among students.