Updated stability programme of Luxembourg, 2007-2010 - Main contents

EN

Official Journal of the European Union

C 49/1

On 12 February 2008, the Council examined the updated stability programme of Luxembourg, which covers the period 2007 to 2010.

Since the end of the 2001-2003 slowdown, Luxembourg is experiencing a new period of strong growth. On average, real GDP grew by 5,25 % and domestic employment by over 3 % a year in 2004-2007. In this context, Luxembourg has been able to bring its public finances back to surplus. Growth should remain strong during the period covered, even if it is forecast to slow down slightly in the coming years. However, despite the currently good condition of the economy and especially of public finances, the problem of population ageing will be particularly severe in Luxembourg and long-term sustainability is therefore a serious challenge.

The programme contains two different scenarios for the macroeconomic and budgetary projections: a ‘central’ scenario and a ‘variant’. The ‘central’ scenario is presented by the programme as the reference scenario, on which its budgetary projections are based. Assessed against currently available information (2), it appears to be based on plausible growth assumptions. It envisages that real GDP growth will decrease from 6 % in 2007 to 4,5 % on average over the period 2008-2010. The programme's projections for inflation in 2008 appear to be on the low side, in view of the acceleration in consumer prices at the end of 2007 and of the recent hike in energy prices. The rise in labour costs in Luxembourg has significantly exceeded the EU average since the early 2000s and the programme projects it to remain rather strong over the period covered, which might progressively weaken the country's competitiveness.

For 2007, the general government surplus is estimated at 1,2 % of GDP in the Commission services' autumn 2007 forecast and at 1,0 % of GDP in the 2007 update of the stability programme, against a deficit of 0,9 % of GDP targeted in the previous update. The main reason for this large divergence with the target is a strong revision of public finance data in recent years, which resulted in a large upward shift of the series of government balances since 2005. This shift implies that Luxembourg has in recent years constantly been at its medium-term objective (MTO) for the budgetary position, which is an estimated structural deficit (i.e. a cyclically-adjusted deficit net of one-off and other temporary measures) of 0,75 % of GDP. This is a much better outcome than the plan in the 2006 update to achieve the MTO from 2007 onwards. Although the improvement in the general government balance in 2007 was half of what was planned in the 2006 update and the better-than-expected outcome is almost entirely due to the large revision in public finance data, the budgetary implementation in 2007 has thus achieved the objectives endorsed by the Council opinion of 27 February 2007 on the 2006 update (3). The Council notes that it is also consistent with the April 2007 Eurogroup orientations for budgetary policies.

In view of these revised data, the current programme no longer envisages a budgetary consolidation like the previous one. The main goal of its medium-term budgetary strategy is...