The International Monetary Fund has completed its Article IV consultation for Luxembourg and published the associated staff report with the authorities’ consent. The assessment says Luxembourg has not yet regained its earlier growth momentum, with output rising 0.6 percent in 2025 and remaining constrained by weak external demand, a softer labor market and a larger role for the public sector. Growth is projected at 1.2 percent in 2026 and 1.7 percent in 2027, while inflation is expected to rise to 2.6 percent in 2026 before easing toward 2 percent over the medium term. The IMF said the financial system remains resilient, but noted lingering vulnerabilities linked to real estate and heightened external uncertainty. Executive Directors judged the broadly neutral fiscal stance in 2026 appropriate, but called for more growth-friendly spending, more targeted energy support for vulnerable groups and a moderate medium-term fiscal adjustment as fiscal balances weaken and spending pressures rise. They also urged containment of current expenditure, better spending efficiency, a broader tax base and stronger fiscal rules and fiscal risk analysis, while noting that the planned income tax reform should be offset to limit its fiscal cost. On financial stability, Directors supported continued close monitoring of liquidity, leverage, funding and concentration risks across banks, investment funds and insurers, welcomed progress on 2024 Financial Sector Assessment Program recommendations and backed further recalibration of the macroprudential framework. They also said structural reforms are needed to revive productivity and competitiveness, including faster digital and artificial intelligence adoption, innovation support, labor market and skills reforms, housing supply measures and lower administrative burdens on firms.

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