Bankruptcies Rise as Luxembourg Faces Economic Headwinds

Luxembourg, August 2025 — Luxembourg has recorded a rise in bankruptcies in the second quarter of 2025, reflecting mounting pressure on businesses as the country grapples with sluggish economic growth and a weakening labor market.

The economy contracted by 0.4% year-on-year in the first quarter of 2025, with a 1% shrinkage from the previous quarter, prompting the International Monetary Fund (IMF) to describe Luxembourg’s performance as “lackluster.” Forecasts for recovery remain cautious, with the European Commission projecting 1.7% growth in 2025 and 2.0% in 2026, while the IMF expects 1.6% growth. STATEC Luxembourg is more conservative, forecasting just 1% growth for 2025, citing global trade tensions and geopolitical uncertainty.

Labor Market Under Strain
The labor market has also shown signs of weakness. Unemployment stood at 5.9% in June 2025, slightly lower than the previous month but higher than a year earlier. Projections suggest it could reach 6% by year’s end. Adding to the strain, Luxembourg-based firm Docler announced it would cut 115 jobs as part of a major reorganization.

Financial Sector Remains Resilient
Despite these challenges, Luxembourg’s financial sector continues to provide stability. Central banks began cutting interest rates in 2024 to support economic activity, while Luxembourg has reinforced its role as a “stable, trusted, and innovative financial hub.”

Recent achievements include the Luxembourg Stock Exchange being named “Exchange of the Year” for the seventh consecutive year in 2024, alongside strong banking sector performance. Luxembourg’s banks boosted profits by 45% in early 2024 and led the EU with the highest CET1 ratio by mid-2024. Credit rating agencies Fitch and Scope both reaffirmed Luxembourg’s AAA rating with a stable outlook, underscoring confidence in its financial system.

In July 2025, the government also submitted Bill No. 8590 to modernize the tax treatment of carried interest, aiming to further enhance Luxembourg’s competitiveness as a global fund hub.

A Balancing Act Ahead
While the financial sector remains a bright spot, the rise in bankruptcies highlights underlying economic vulnerabilities. Luxembourg, like many other nations, must now balance its resilience as a financial centre with the broader challenges of slowing growth, fragile labor markets, and global uncertainty.

Read Here : tradingeconomics.com/luxembourg/bankruptcies

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