The Central Bank of Luxembourg has published its 2025 Financial Stability Review, setting out its assessment of systemic risks and the resilience of Luxembourg’s financial system and supporting its macroprudential work domestically and through participation in the National Systemic Risk Committee and the European Systemic Risk Board. The review is structured around three chapters plus analytical boxes and an annex of dedicated studies. It surveys Luxembourg and global macroeconomic conditions in 2024 and compiles international institutions’ growth and inflation projections for 2025 and 2026, alongside discussion of risks to economic growth and developments in Luxembourg’s residential real estate cycle and commercial real estate risks. It also reviews recent financial market dynamics in early 2025, including excess volatility linked to quasi-universal US tariffs introduced from early April 2025 and potential implications for investor risk aversion and financial stability. Sector coverage spans banks, investment funds and insurance in 2024 and the first quarter of 2025, supplemented by results from macroprudential stress testing and an assessment of vulnerabilities in the investment fund sector. The annex includes three studies examining the productivity impact of information technology investment in Luxembourg’s banking sector, a euro area DSGE model of climate-change risks and the role of macroprudential and microprudential policies, and a proposed robustness-testing framework that incorporates interactions between Luxembourg credit institutions and investment funds.

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