Innovation Europe > News > Innovation EU Vol2-1 > Innovation Luxembourg

After years of growth, the economy of Luxembourg is declining. In 2009 the GDP per capita is still the highest in the EU-27 but it is expected that GDP will decrease by 4% in 2009 as a result of the economic crisis.

Luxembourg’s economy is characterised by a high level of labour productivity, foreign direct investments, employment growth and a positive public balance.

Despite excellent performances for several years, the performance of 2009 could be considered as bad for the whole economy. With an unemployment rate that is expected to reach 7% in 2009, a negative public balance for the first time since 2004, and a government debt that should increase from 6.3% to 14.7% of GDP, the economic and financial crisis will have strongly affected the economy. In addition, the decrease of tax revenues from the finance industry will have consequences on the budget of the government for the next two years.

Luxembourg’s innovation system should not expect a decrease of public R&D expenditures as the STI policy is a priority for the government as is the Lisbon objective. On the contrary, the national innovation system might suffer from a collapse of business R&D investments that represented 83.76% of total R&D expenditures in 2007.

Main innovation challenges

• Increase collaboration between public research and private companies, and particularly SMEs.
• Attract and keep high skilled workers in Luxembourg.
• Favour the creation and development of new innovative companies.

Conclusion

There are three key areas for Luxembourg to develop in the future: Innovation in services, diversification into promising key technological areas, and IP – innovation in services has become officially one of the six research priorities of the country since 2008. With more than 30% of GDP, the finance industry is one of the pillars of the national economy. But as the current financial crisis demonstrates, such a high concentration of wealth in one industry can be very risky.

As a consequence, the government has undertaken an acceleration of the diversification of the economy into specific key technologies such as biotechnologies and green technologies. Two clusters were created to develop the country’s economy in these two fields in 2008 and 2009.

Finally, Luxembourg might concentra–te in the near future on another promising area: IP. The country boasts the best results in the whole EU in this field for several years. This performance is mainly due to its competitive fiscal policy in IP, and not to an outstanding capacity of the domestic companies to register patents.

As a consequence, and because the size of the country will hardly enable it to develop more than two or three worldwide centres of excellence, Luxembourg may decide in the near future to capitalise on its competitive fiscal policy in IP through the development of open innovation activities and strengthening of research.