Luxembourg has moved up five places from last year, jumping from the eleventh to the sixth position, among sixty-one countries, in the 2015 edition of the IMD World Competitiveness Yearbook (WCY), which ranks the world’s best performing economies.
This encouraging progression reflects particularly good scores attributed to the Luxembourg for its economic efficiency and its business-friendly environment, as well as the more positive mind-set of entrepreneurs following the current cyclical upturn and the public authorities’ reform agenda.
To the Chamber of Commerce, this positive atmosphere is the perfect opportunity to pursue and accelerate reforms to meet the country’s traditional challenges, mainly those linked to unemployment, tax policy, productivity and private investment in R&D. The good position attained by the Grand-Duchy was a nice surprise and brings the country a renewed confidence. Moreover, it represents a positive image of economic performance, and shows that an economy, which is open and conducive to the development of growth projects, with a prosperous business community, remains intact, despite recent attacks and attempts by certain foreign media outlets to tarnish the country’s image.
After several consecutive years of more mixed performance, marked by a financial and economic crisis that has left lasting effects, the Grand-Duchy has reverted to its excellent results from before the crisis. Due to its many positive developments, Luxembourg was the highest ranked EU economy in the WCY 2015 ranking.
Four pillars serve to gauge the evolution of competitiveness – economic performance, efficiency of public authorities, business environment, and infrastructure.
In terms of economic performance, Luxembourg maintained its seal of excellence. The Chamber of Commerce welcomed the perceived improvement in economic diversification (46th to 42nd), however considered it still modest given the continued efforts, by both the public and private sectors, to improve this area in recent years. The main concern in this category remains, in relation to employment, and more specifically, structural unemployment.
Concerning the efficiency of public authorities, Luxembourg achieved its greatest performance in public finance, institutional framework and business legislation. The Grand-Duchy enjoys a privileged position in public finance – local entrepreneurs considered that the related management was more efficient than the previous year, an outcome that can probably be attributed in part to the double fiscal consolidation strategy of the “Zukunftspak” on one hand, and the ‘Copernican revolution”, which is wanted in budgetary matters, on the other.
Conversely, the announcement of a tax reform does not seem to have had a positive effect on the ranking, with Luxembourg dropping one position in the tax policy sub-category, to 39th, which reflects the doubts and expectations of business leaders in the field. Beyond the downside, the survey participants generally showed a rather optimistic outlook for the future, welcoming the evolution of the institutional framework and believing that social cohesion is one of the country’s greatest strengths.
Luxembourg climbed ten spots in the business environment category, from 14th to 4th. Entrepreneurs are even more confident than last year, with an encouraging forecast of growth for the current year. Nevertheless, the Chamber of Commerce stressed that all impediments to investment are not yet removed, including administrative procedures to obtain an operating licence, construction and urban planning, or environmental matters. The perception of entrepreneurs in terms of productivity is also more favourable this year, which is a promising sign for individual companies. However, according to the Chamber of Commerce, this warrants a closer look at assessing the productivity of the economy as a whole.
In terms of infrastructure, the message seems to be that Luxembourg should double their efforts in the coming years, as it has been stuck oscillating between the 21st and 23rd positions since 2010. However, only proactive and pertinent public and private investments will identify future potential growth rate of the economy. For example, companies would need more trained personnel to carry out R&D activities. Moreover, entrepreneurs foresee a strong competitive potential in the field of green energy – encouraging news for the development of environmental technologies.
Overall, a thorough analysis of the individual competitiveness factors suggests that some favourable scores – especially related to indicators of perception, representing one third of all indicators – can be explained by a more optimistic atmosphere in this first half of 2015.
Ambitious reforms have been announced in administrative simplification, mobility, housing and land. From a macroeconomic perspective, 2015 projects as a year of strong growth, especially due to exogenous conditions assisting economic activity (accommodating monetary policy, historically-low interest rates, declining energy prices, depreciation of the Euro). A deterioration in the macroeconomic outlook for post-2015, could lead to more conservative opinions in the future.
In sum, the Chamber of Commerce endorsed the current optimistic vibes, and further hoped that the plans will soon materialise into concrete actions.