MACROECONOMICS INNOVATIVE- 1
Macrovariable 1: GROSS DOMESTIC PRODUCT:
Country to be analysed: LUXEMBOURG
Period of analysis: 2008-2010
“GDP is the market value of all the final goods and services produced by a country within its domestic territory in a fiscal year.”

Luxembourg

Luxembourg, is a perfect example of a stable economy, characterized by high income, low unemployment, low inflation, and high growth. The industrial sector, once dominated by steel has now diversified into rubber and chemicals. Growth in the financial sector has been phenomenal and currently contributes 28% towards GDP (gross domestic product). This unprecedented growth in the financial sector has compensated the decline in steel manufacturing. Majority of the banks in Luxembourg are foreign owned and have significant overseas transactions. Agriculture which accounts for only 1% of this country’s GDP is primarily based on family-owned farms. The standard of living in Luxembourg is among the highest in the world, and its per capita GDP is ranked second globally.

GDP of Luxembourg over the past few years:
Source: International Monetary Fund - 2011 World Economic Outlook Year | Gross domestic product based on purchasing-power-parity (PPP) valuation of country GDP | Percent Change | | | | 1996 | 17.138 | 3.45 % | 1997 | 18.477 | 7.81 % | 1998 | 19.898 | 7.69 % | 1999 | 21.891 | 10.02 % | 2000 | 24.253 | 10.79 % | 2001 | 25.425 | 4.83 % | 2002 | 26.897 | 5.79 % | 2003 | 27.888 | 3.68 % | 2004 | 30.101 | 7.94 % | 2005 | 32.828 | 9.06 % | 2006 | 35.574 | 8.36 % | 2007 | 39.036 | 9.73 % | 2008 | 40.476 | 3.69 % | 2009 | 39.415 | -2.62 % | 2010 | 41.271 | 4.71 % |

Recent trend in GDP
A growth that is still unbalanced
2007 was excellent and 2008 still rather good…
According to recently released revised data, real GDP grew by 5.2% in Luxembourg in 2007, only slightly less than in 2006 (6.4%). A deceleration has clearly been underway since the second quarter of 2007 but, according to the latest available data, the first half of 2008 was still rather strong. Employment has remained buoyant, rising by an annual 5.1% in the first half of this year. Private consumption has been rather subdued in 2008 despite the tax cuts foreseen by the budget and the non negligible increase in wages (1¼% a year in real terms in 2006 and 2007). Investment is likely to slow down considerably (but it was very strong in 2007): private investment, in particular, is projected to be weak, growing by around 1%, while government investment should rise by nearly 5% in volume. Exports of services have already slowed down considerably. In total, real GDP is expected to grow by about 2½% in 2008, chiefly thanks to the still rather strong first semester.
In Luxembourg, as in the majority of the euro zone countries, the recovery started in the middle of 2009 has not yet enabled the level of GDP which prevailed at the start of 2008 to be reached again. According to the latest figures published, Luxembourg's gross domestic product has risen by 5.3% over a year at the 2nd quarter 2010. The 2nd quarter 2009 had in fact been the low point of the economic cycle in the euro zone and had been particularly disappointing for Luxembourg, with an 8% drop in the GDP over a year, which was one of the worst results in the euro zone at that time. In comparison with the 1St quarter 2010, Luxembourg's GDP for the 2nd quarter has gone down slightly (-0.3%). This is, however, more a sign of a moderation of growth rather than a return to a crisis. It must also be mentioned that the negative figure for the 1st quarter 2010 resulting from the previous version of the quarterly accounts (-0.3% over a quarter) became a slight increase (+0.8%) in the new version following the updates. The data from 2006 to 2009 has been adjusted on the basis of the national accounting's new annual data. In terms of growth rates, the annual results are relatively comparable to those of the previous version: the change in the GDP is however revised by +0.0% to +1.4% for 2008 and by -4.1% to -3.6% for 2009 Furthermore, as for the growth trend at the start of 2010, the financial sector has still borne little of this at the end of the 2nd quarter and nor have business services this configuration, whilst it involves two main branches of the Luxembourg economy, is emblematic of an expansion which is still fragile and unbalanced. In terms of expenses, household consumption has remained stable in the 2nd quarter, after the leap in the 1st quarter. The gross fixed capital formation (i.e. the investment) and the external component (exports less imports of goods and services) are, overall, continuing the upward trend started during the 2nd half of 2009. Public consumption is not showing the same trend and is tending instead to put a brake on the recovery of the first part of 2010.
Luxembourg in crisis: return over 2008 and 2009 The annual data from the revised national accounts have been available since October 2010. This includes new information available only based on annual surveys and also the adjustments - effected once a year – on some entities which need special treatment. The GDP data and its components have been revised for the years 2006 to 2009. In terms of economic growth (annual variation in the GDP expressed as a volume), the revisions are not insignificant, adding nearly 2 points over the last two years (+1.4 in 2008 and +0.4 in 2009). The idea here is not to provide a detailed analysis of these revisions, but to bring a new perspective to the overall data, which is now consolidated up to 2009 and which is thus deemed to bring a more accurate picture of the recent economic trend. It is particularly interesting to come back "cold" to the years 2008 and 2009, which can be classified as "years of crisis". Certainly, the start of 2008 had still been relatively dynamic, but the final result of growth – handicapped in particular by a final catastrophic quarter – was only 1.4% (compared to an average of 5.3% per annum over the previous 10 years). As for 2009, there is no need, a priori, to justify that it was well and truly a year of crisis.

Collapse in investment and low contribution of external demand Over the whole of 2008 and 2009, the reduction in investment expenses ("gross fixed capital formation" in national accounting vocabulary) is the top - not to mention the only - item responsible for the drop in Luxembourg's GDP. It was particularly over the year 2009 that Luxembourg was different from the other countries, with a drop nearly twice as big as that recorded on average in the euro zone. In terms of consumption, however, the national performance would, instead, make other countries jealous. It is mainly on the consumption of households and for the year 2008 that this singularity is noted.

Person responsible for the publication: Serge ALLEGREZZA
Coordination, Editor: Bastien LARUE
Internet: www.statec.public.lu

Overview * Economic reforms may have given a boost to industrial productivity and brought in foreign investment in capital intensive areas. But the boom has not created jobs. This was not unexpected. According to a report by the Washington-based Institute of Policy Studies (IPS), the combined sales of the world's top 200 MNCs is now greater than the combined GDP of all but the world's nine largest national economies. Yet, the total direct employment generated by these multinationals is a mere 18.8 millions -one-hundredth of one per cent of the global workforce. * India's Ninth Five-Year Plan projects generation of 54 million new jobs during the Plan period (1997-2002). But performance has always fallen short of target in the past, and few believe that the current Plan will be able to meet its target. * India's labour force is growing at a rate of 2.5 per cent annually, but employment is growing at only 2.3 per cent. Thus, the country is faced with the challenge of not only absorbing new entrants to the job market (estimated at seven million people every year), but also clearing the backlog. * Sixty per cent of India's workforce is self-employed, many of whom remain very poor. Nearly 30 per cent are casual workers (i.e. they work only when they are able to get jobs and remain unpaid for the rest of the days). Only about 10 per cent are regular employees, of which two-fifths are employed by the public sector. * More than 90 per cent of the labour force is employed in the "unorganised sector", i.e. sectors which don't provide with the social security and other benefits of employment in the "organised sector." * In the rural areas, agricultural workers form the bulk of the unorganised sector. In urban India, contract and sub-contract as well as migratory agricultural labourers make up most of the unorganised labour force. * Unorganised sector is made up of jobs in which the Minimum Wage Act is either not, or only marginally, implemented. The absence of unions in the unorganised sector does not provide any opportunity for collective bargaining. * Over 70 per cent of the labour force in all sector combined (organised and unorganised) is either illiterate or educated below the primary level. * The Ninth Plan projects a decline in the population growth rate to 1.59 per cent per annum by the end of the Ninth Plan, from over 2 per cent in the last three decades. However, it expects the growth rate of the labour force to reach a peak level of 2.54 per cent per annum over this period; the highest it has ever been and is ever likely to attain. This is because of the change in age structure, with the highest growth occurring in the 15-19 years age group in the Ninth Plan period. * The addition to the labour force during the Plan period is estimated to be 53 millions on the "usual status" concept. The acceleration in the economy's growth rate to 7 per cent per annum, with special emphasis on the agriculture sector, is expected to help in creating 54 million work opportunities over the period. This would lead to a reduction in the open unemployment rate from 1.9 per cent in 1996-97 to 1.47 per cent in the Plan's terminal year, that is, by about a million persons - from 7.5 million to 6.63 million. * In other words, if the economy maintains an annual growth of 7 per cent, it would be just sufficient to absorb the new additions to the labour force. If the economy could grow at around 8 per cent per annum during the Plan period, the incidence of open unemployment could be brought down by two million persons, thus attaining near full employment by the end of the Plan period, according to the Plan. * However, there appears to be some confusion about the figure of open unemployment. The unemployment figure given in the executive summary of the Ninth Plan, gives the figure of open unemployment at 7.5 million while the annual report of the Labour Ministry, for 1995-96, puts the figure for 1995 at 18.7 million. An internal government paper prepared in 1997 put the unemployment figure at the beginning of the Eighth Plan at 17 millions and at 18.7 million at the end of 1994-95. Perhaps the Planning Commission referred to the current figure while the Labour Ministry figure referred to the accumulated unemployment backlog.
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Underemployment * Open unemployment is not a true indicator of the gravity of the unemployment problem in an economy such as India, characterised as it is by large-scale underemployment and poor employment quality in the unorganised sector, which accounts for over 90 per cent of the total employment. The organised sector contributes only about 9 per cent to the total employment. * Underemployment in various segments of the labour force is quite high.
For instance, though open unemployment was only 2 per cent in 1993-94, the incidence of under-employment and unemployment taken together was as much as 10 per cent that year. This, in spite of the fact that the incidence of underemployment was reduced substantially in the decade ending 1993-94. * According to the Planning Commission, the States which face the prospect of increased unemployment in the post-Ninth Plan period (2002- 2007) are Bihar, Rajasthan, Uttar Pradesh, Kerala and Punjab.
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Sector-wise absorption of labour | Agriculture | 62 per cent | Manufacturing & construction | 16 per cent | Services | 10 per cent | Sundry / miscellaneous jobs | 12 per cent |
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Table 1 : Age structure of population: 1997-2002 Age-group | 1997 | 2002 | 0 - 14 | 37.23% | 33.59% | 15 - 59 | 56.07% | 59.41% | 60+ | 6.70% | 7.00% |
Table 2 : Trends in Labour Force Participation Rates(Per Thousand of Population) Age Group | Period | Male | Female | | | Rural | Urban | Rural | Urban | 15-29 | 1977-78
1987-88
1993-94 | 879
824
804 | 746
710
684 | 515
478
455 | 257
211
204 | 30-44 | 1977-78
1987-88
1993-94 | 990
988
990 | 990
987
986 | 619
603
600 | 324
301
300 | 45-59 | 1977-78
1987-88
1993-94 | 963
964
968 | 940
933
937 | 538
538
543 | 291
275
283 | 60+ | 1977-78
1987-88
1993-94 | 667
670
699 | 517
482
443 | 221
220
241 | 130
123
114 | All (15+) | 1977-78
1987-88
1993-94 | 904
879
877 | 831
810
811 | 517
496
491 | 269
239
238 |
Note: Constituent shares in labour force in 1993-94 are Rural Male 0.499, Rural Female 0.270,Urban Male 0.182 and Urban Female 0.049.Table 3: Participation in Labour Force by Age Group and by Sex: 1997 - 2012(per thousand of population) Age | Male | Female | | 1997 | 2002 | 2007 | 2012 | 1997 | 2002 | 2007 | 2012 | 15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60+ | 517
871
975
988
996
986
981
961
914
637 | 482 | 447

(a) | 412 | 302
408
454
505
526
538
524
476
411
205 | 282 | 261

(a) | 241 |
Note: (a) No change in labour force participation in age groups above 20 years. Table 4 : Labour Force Projections by Age Groups Age Group | 1997 | 2002 | Growth | | (Million) | (% p.a.) | 15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60+ | 40.31
55.45
56.89
52.64
46.60
39.56
32.90
25.86
18.86
28.15 | 45.03
62.91
61.47
58.88
52.80
46.04
38.13
30.27
22.45
31.64 | 2.24
2.55
1.56
2.26
2.53
3.08
2.99
3.20
3.55
2.37 | 15+ | 397.22 | 449.62 | 2.51 |
Table 5: Population and Labour Force: 1997 - 2012(million - 1st April) | 1997 | 2002 | 2007 | 2012 | Population | 951.18 | 1028.93 | 1112.86 | 1196.41 | Labour Force | 397.22 | 449.62 | 507.94 | 562.91 | Table 6 : Projections of Work opportunities 1997-2002 Sector | GDP Growth
(% p.a.) | Work Opportunities
(Million) | | 1997-02 | 1997 | 2002 | Agriculture | 3.9 | 238.32 | 262.48 | Mining & Quarrying | 7.2 | 2.87 | 3.54 | Manufacturing | 8.2 | 43.56 | 48.22 | Electricity | 9.3 | 1.54 | 1.93 | Construction | 4.9 | 14.74 | 17.03 | Wholesale & Retail Trade | 6.7 | 34.78 | 41.67 | Transport, Storage & Communication | 7.3 | 11.96 | 14.57 | Financing, Real Estate, Insurance and Business Services | 8.5 | 4.55 | 5.68 | Community, Social and Personal Service | 7.1 | 38.98 | 46.41 | All Sectors | 6.5 | 391.30 | 441.52 |
Table 7 : Population, Labour Force and Employment(Million) | 1978 (a) | 1983 (b) | 1994 (a) | 8th Plan | 9th Plan | 10th Plan | | | | | (1992-97) (f) | (1997-02) (f) | (2002-07) (f) | Population (c) | 637.6 | 718.2
(2.19) | 895.0
(2.12) | 951.2
(1.89) | 1028.9
(1.58) | 1112.9
(1.58) | Labour Force | 255.8 | 286.6
(2.09) | 368.5
(2.42) | 374.2 | 423.4 | 478.8 | Employment | 249.1 | 281.2
(2.23) | 361.5
(2.42) | 367.2 | 416.4 | 474.7 (d) | Unemployment | 6.7 | 5.4 | 7.0 | 7.0 | 7.0 | 4.1 (e) | Rate (%) | 2.63 | 1.89 | 1.89 | 1.87 | 1.66 | 0.86 (e) |
Notes:1. Estimates of labour force and employment are on usual status concept and pertain to 15 yearsand above.2. Figures in brackets are compound growth rates in the preceding period.(a) As on 1st January(b) As on 1st July(c) Population at the terminal year of the plan(d) Required to attain near full employment.(e) Unemployment reduces to negligible level by the year 2007 (f) Labour force, employment and unemployment are stated as annual averages during the Plan period |