Context
Luxembourg is one of the world’s smallest countries located in northwestern Europe. Since the 10th century, it continues to operate as an autonomous, political unit. Well known for its vibrant banking and finance sector, the increasing concentration of migrants has caused the government to locate some industries in rural areas. Three fourths of the country’s workforce is engaged in trade, whereas one fourth is employed in industry or construction. The smallest remainder works in agricultural and other pursuits.
GDP Analysis
The nominal GDP and real GDP of Luxembourg both increased from years 2010 to 2019. However, nominal GDP, unadjusted for inflation, seemed to have a greater increase compared to real GDP. These relatively high figures result from the biggest sources of primary activity, including banking and financial services, construction, and more. According to the World Factbook, Luxembourg amassed $15.99 billion in exports from machinery and services and $20.66 billion in imports. While real GDP growth increased in smaller increments over time, real GDP per capita had the most significant difference from its value of $85,685.85 in 2010 to $124,569.445 in 2019. This is due to a decrease in the population since GDP per capita is real GDP divided by the population. Assuming a constant population growth, the percentage change in real GDP should be the same as the percentage change in real GDP per capita. Without accurate figures of these values in 2020, it is difficult to discuss the general trend of Luxembourg’s economy before and after the pandemic.
Table 1.1 Figures for Nominal GDP, Real GDP, Real GDP % Change, and Real GDP per capita
Data Source: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2019&locations=PH&start=2010
Extension Exploration
GNI Per Capita Analysis
Figure 1.2 GNI Per Capita of Luxembourg from 2010 to 2019
Figure 1.3 GDP Per Capita of Luxembourg from 2010 to 2019
Data Source: https://www.macrotrends.net/countries/LUX/luxembourg/gdp-per-capita
Table 1.2 GNI and GDP per capita of Luxembourg from 2016 to 2019
GNI per capita, gross national income per capita, is converted to U.S. dollars using the World Bank Atlas method (for comparison across different economies) and divided by the midyear population. It is the sum of value added by all resident producers, including product taxes and net receipts of primary income from abroad.
GNI per capita is usually about 36.5% lower than GDP per capita. This is because Luxembourg is known for being a business-friendly country; Its low corporate tax rate, stable workforce, and government incentives, along with its small population, resulting in a high GDP per capita. Low GNI per capita values are usual for countries wherein many foreign businesses are operating. This is because the profits for these businesses are repatriated to the country of origin against the country’s GNI but not the GDP.
In 2020, the GDP per capita of Luxembourg was $116,921, which was $1,082 less than in 2019, when it was $115,839 (countryeconomy.com). Although I could not find any GNI per capita values in 2020, I figured it would be much smaller than the fall in GDP per capita.
Figure 1.2 GNI per capita growth (annual %)
Data Source: https://www.gapminder.org/tools/#$chart-type=linechart
Using the Gapminder tool, I analysed the values of Luxembourg's annual GNI per capita growth from the years 2010 to 2020. However, in Figure 1.2 above, the results for 2020 are not yet visible. Throughout the years 1980 to 1985, there had been a massive increase in the GDP values of around 32%. This is the second-highest recorded growth apart from the financial crisis recovery in 2009 to 2010 of about 40%. From 1985 onwards, there were primarily minor fluctuations in the GNI per capita values, until massively decreasing in 2009 of more than 50%. This was mainly due to the ongoing financial crisis and the first global recession in 60 years that heavily affected Luxembourg’s small open economy. Its financial sector, mostly composed of 152 foreign-owned subsidiary banks (Europe’s largest investment fund industry and second-largest money market industry) had been fully exposed to the economic turmoil. Apart from the financial service exports, the economy’s traditional export sectors also affected this contraction in European demand.
From 2010 to 2011, Luxembourg had a relatively quick recovery and financial recovery. This is mainly credited to the authorities’ rescue of Fortis and Dexia bank and the intervention of three other insolvent banks. With Luxembourg being recognized as Europe’s advanced financial centre, it was imperative that after economic turmoil like these, for authorities to develop effective multilateral aid agencies.
Although there are no available GNI per capita values for 2020, I hypothesize that there would only be a slight decline in the values compared to 2019. According to macrotrends.net, “As of December 1, 2020, 330 deaths had been attributed to the pandemic in Luxembourg, and the economy was forecast to contract by 5.8% for the year.” Compared to the Philippines, Luxembourg’s estimated unemployment rate was 5.4%. I imagine this is mostly accredited to other economic sectors (e.g. agriculture and other pursuits). I presuppose that Luxembourg will discover a way to recover after a slight decline before the pandemic ends. This is mainly due to three-fourths of its economy being involved in trading. In this scenario, I imagine it would not be overly challenging to continue working at home and engaging in online trade instead. The real question is whether other economic sectors can adapt during this pandemic and its possible consequences in becoming a long-term problem.
Sources:
https://www.macrotrends.net/countries/LUX/luxembourg/gni-per-capita
https://www.imf.org/en/News/Articles/2015/09/28/04/52/mcs033009
https://www.imf.org/external/pubs/ft/scr/2009/cr09178.pdf
https://www.cofacecentraleurope.com/Economic-analysis/Luxembourg
https://www.cia.gov/the-world-factbook/countries/luxembourg/
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