Change Edition

Trade deficit - the striking feature of Luxembourg economy
Luxembourg

Trade deficit - the striking feature of Luxembourg economy

3 min. 17.07.2017 From our online archive
Between 2005 and 2015, Luxembourg's average annual trade deficit was €5.8 billion. The trade deficit is also significant when looking at the geography of its partners.

A striking feature of the Luxembourg economy is its trade deficit according to a new report issued by Statec, the country's statistics office.

Since 1975, the trade balance has continued to deteriorate, reaching a record high in 2012 when it reached €8 billion. This is mainly caused by Luxembourg's increasing energy dependence, a constant growth in household consumption, as well a lower market share held by industry in favour of services. 

Between 2005 and 2015, Luxembourg's average annual trade deficit was €5.8 billion. The trade deficit was also significant when looking at the geography of its partners.

Luxembourg's largest trade deficit was with Belgium (- €4.5 billion), followed by Germany (- €1.7), the Netherlands (- €0.4) and France (- €0.3).

Luxembourg has close commercial ties with Belgium

Luxembourg economy relies heavily on the Belgian market, with imports disproportionately higher than imports, leading to a rate of 24 per cent in overall trading activities.

The figure shows the difference in value of exports as opposed to the value of imports between the two states and is by far the lowest rate among all of Luxembourg's other commercial partners.

Luxembourg's extensive trading with Belgium can be explained by the close commercial ties established in 1921 through the Belgo-Luxembourg Economic Union, some of which are still shaping their business relations today.

Apart from its neighbours, Luxembourg also scores a considerable deficit with the United Stated (€-0.4 billion), with the negative balance worsening since 2011 due to major air freight investments.

Negative trade balance shouldn't be worrying

But a negative trade balance should not be seen as a sign of unhealthy economy, states Statec. In Luxembourg, the trade deficit is counterbalanced by the surplus of services available across the country.

It is this gradual transition towards a service-based economy that has led to a widening trade deficit in the Grand Duchy, mainly because services production, despite being on the rise, requires that goods are brought from abroad.

In general, the report shows that Luxembourg's balance is on the surplus with most of its commercial partners. For instance, in 2015 there was a record of 166 bilateral surpluses and only 27 deficits. 

The Statec report highlights that Luxembourg's foreign trade is strongly oriented towards neighbouring countries.

Accounting for three quarters of the total foreign trade registered between 2005 and 2015 , the main trade partners of Luxembourg are Germany, Belgium, France, followed by the Netherlands and to a lesser extent the United States. 

Geographical location plays major role

Several other factors explain why Luxembourg's trading has a "intra-regional" character.

Its geographical proximity to Germany and France, not to mention their size and economies, the proximity of the Rotterdam and Antwerp harbours, as well the European Union Intra-EU trade agreements all have a major impact on the flux of imports and exports to and from Luxembourg.

While Luxembourg's trading activities within the European Union have slightly declined since 2011, mainly due to sluggish markets worldwide, non-EU trade saw a considerable increase, primarily in Asian and American markets. 

Since 2011, Luxembourg's exports to non-EU markets have increased on average by 1.4 per cent, while its imports have increased on average by 8.4 per cent.

In 2015, Luxembourg exported to 192 countries, generating €11.73 billion, while incoming trading during the same period was worth €17.69 billion and was produced in 155 countries.

Given Luxembourg's size, its trade made up for 0.3 per cent of the total trading activities of the European Union in 2015, coming before Cyprus, Malta and the Baltic states. 

For a detailed outline of Luxembourg's trade between 2005 and 2015, visit the Statec website

 (Roxana Mironescu, roxana.mironescu@wort.lu, +325 49 93 748)