2023-06-25 21:02:55
IMD World Competitiveness Yearbook
Until now accustomed to the top 15, Luxembourg has seen its ranking plummet in the “World Competitiveness Yearbook”, a ranking that assesses the competitiveness of economies.
“A counter-performance that challenges.” These words from the Luxembourg Chamber of Commerce alone sum up the position of the Grand Duchy in the World Competitiveness Yearbook ranking. Usually ranked between sixth and 15th place, the country plummeted in the 2023 edition of the index, appearing in 20th place.
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This result corresponds to a fall of seven places compared to the previous year. If Luxembourg remains in the first third of the ranking, this performance is all the more embarrassing if we compare it to those of the economies to which the Grand Duchy has always been close. While Switzerland, Sweden, Ireland, the Netherlands and even Singapore are holding up well, Luxembourg is losing ground.
On the other hand, other countries which had never outstripped the Grand Duchy in terms of competitiveness over the past decade are managing to do better. These are Saudi Arabia, Australia, Belgium, Iceland, but also the Czech Republic. As in 2022, Denmark takes first place on the podium, which is completed by Ireland and Switzerland.
Strong capacities of resilience
If the Swiss institute IMD, at the origin of this index, takes into account more than 250 indicators to achieve this ranking, one factor is particularly responsible for the fall of Luxembourg in the general ranking. While it placed first in the “Economic performance” pillar in 2022, Luxembourg is in 38th position a year later, making it the country that suffered the sharpest drop in its ranking in this indicator.
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This negative trend is explained by the growth gap recorded compared to other European economies. Luxembourg, which experienced a retraction of its GDP by -0.8% in 2020, due to the pandemic, against -5.6% for all the countries of the European Union, is logically experiencing a rebound in its less nuanced growth than the other Member States. A factor that pushes the Luxembourg Chamber of Commerce to indicate that it “seems premature at this stage to speak of a major loss of competitiveness”, even if the latest edition of the Economic Barometer confirms this “crisis of confidence”.
In the chapter “resilience of the economy”, the Grand Duchy does better, ranking 15th, behind Belgium (13th) but ahead of Germany (17th) and France (31st). A majority of the companies surveyed claim that their level of indebtedness does not hinder their competitiveness, allowing Luxembourg to place 18th on this criterion. The Grand Duchy also performs well in inflation forecasting, where the country ranks 16th with 3.4% inflation expectation for 2023. But if there is one indicator where the country excels, it is is indeed that of political stability, for which Luxembourg ranks fourth, just behind Denmark, Switzerland and Finland.
Expensive prices
Among the obstacles to Luxembourg’s attractiveness, the IMD ranking highlights in particular the particularly high cost of labour, the country ranking first among the Member States of the European Union. Closely linked to the wage indexation system, this factor weighs on the competitiveness of companies, some of which are planning to relocate their activities. Thus, the Grand Duchy fell nine places for the “risk of business relocation” indicator, and thus rose to 57th position, out of 64 countries ranked.
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Well-known, the shortage of labor is one of the other weaknesses highlighted by the index. The 70% of foreigners who make up the Luxembourg labor market places the country third, just behind Qatar and the United Arab Emirates as far as foreign labor is concerned. Unique in Europe, this situation makes Luxembourg dependent on sustained growth in employment. Although the Grand Duchy remains in the top ten for its ability to attract highly qualified personnel, it still drops five places compared to 2020 on this indicator. The lack of available digital skills (34th) and the difficulty in finding qualified engineers (52nd) have a particularly detrimental effect on Luxembourg’s ranking.
In addition, the country continues its fall started in 2017 within the “Price” sub-pillar. This indicator includes consumer price inflation, for which the Grand Duchy ranks 33rd, or the cost of renting an apartment, for which Luxembourg ranks 53rd. Overall, the country fell from 51st to 55th place for the price indicator.
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