IDEA, the think tank founded by Luxembourg’s Chamber of Commerce a decade ago, published its annual economic report on Thursday morning. Titled “Disconcerted”, the 2025 edition directly references the global instability shaping current economic conditions.
In recent days, a wave of troubling headlines has rippled across the world, chief among them the trade war triggered by Donald Trump’s new punitive tariffs. According to IDEA Director Vincent Hein, the consequences are already reaching the Grand Duchy.
“What we need to observe in the coming weeks,” Hein explains, “are the measures that might be taken by both the U.S. and Europe. These could significantly impact two key trade channels for Luxembourg: first, the exchange of services – primarily financial – and second, foreign investments flowing from the U.S. to Luxembourg. Some of these measures could lead to new limitations, restrictions, or taxes on investment services, which would deal us a serious blow.”
While Luxembourg has managed to weather several recent crises, especially in 2024 with a slight economic rebound , the economy is only slowly recovering. According to Hein, “It is an economic relaunch, but it won’t be enough to make up for the difficult years of 2022 and 2023. Our analysis shows that the crisis triggered by the war in Ukraine has had a more severe impact on Luxembourg than the Covid pandemic. As a result, we have an economy that’s struggling to keep its head above water – one that remains heavily reliant on public finances. But we also know the state cannot continue propping up the economy indefinitely. On top of that, the main drivers of public finances – investments and the real estate market – have been facing crises of their own.”
One example: the lack of real estate investments, which has resulted in a €10 billion shortfall over the past three years. As a result of the multiple overlapping crises in recent years – including the war, the pandemic, and economic volatility – a deep structural uncertainty has taken root. Hein stresses that the government must act to rebuild public confidence in the economy.
“We are once again facing a crisis of trust,” he said. “History is repeating itself, and that is certainly not easy for those responsible for making decisions. Still, there are a few key ingredients that matter – above all, the economic stability of the country. We need to re-establish financial room for manoeuvre. The government must invest more while also reducing its expenses. This is particularly achievable by shifting the social system toward better protection for the elderly. The pension system remains a non-negotiable priority.”
In recent months, the Christian Social People’s Party (CSV) and the Democratic Party (DP) government has attempted to reorient the economy by phasing out Covid-era support measures and replacing them with tax reductions for businesses and individuals. But it remains uncertain whether these measures will be enough to restore investor confidence. Hein concludes that “a radical climate of uncertainty is reigning Luxembourg.”
Beyond immediate concerns, the IDEA report also assesses longer-term challenges shaping Luxembourg’s future: a growing elderly population, the energy transition, rising defence needs, and the escalating effects of climate change.
