Vincent Hein : Real Estate, Blind Spots and Policy Risks

How do you assess Luxembourg’s current economic phase?

I observe that Luxembourg has entered four consecutive years of zero or near-zero growth, a situation unprecedented in recent decades. The country absorbed the financial crisis of 2008, the eurozone turmoil and the pandemic without major scars, yet the shock following the war in Ukraine, combined with inflation and rising interest rates, affected us more deeply. When I examine recent indicators, I detect signals of a modest recovery. Real estate transactions pick up again, though insufficiently to stimulate new housing construction. The labour market shows slight improvement, but its durability remains uncertain because we must distinguish between public and private employment dynamics. As for the Financial Centre, encouraging elements appear in banking results, investment fund activity and insurance performance. Hence, we may approach the end of the downturn. The open question concerns the growth trajectory ahead. Will expansion stabilise around one or two percent, or can Luxembourg regain the four or five percent rates that once characterised its model ? This uncertainty shapes my analysis. The sensitivity of our economy to external shocks, notably interest rate movements, demands cautious interpretation. A fragile recovery cannot conceal structural weaknesses that accumulated during this period of stagnation.

“We have to spend less and invest more

Has the weight of real estate and interest rates been underestimated ?

One of my hypotheses to explain this sharp slowdown relates to the underestimation of the real estate sector within our growth model. When we speak about GDP, we rely on precise methodologies measuring added value, yet lending trends reveal a striking credit gap. Comparing lending flows from 2019 to 2022 with those from 2022 to 2025 shows a difference exceeding ten billion euros. Relative to a national GDP around ninety billion euros, that contraction matters significantly. Interest rates became kings in these trends. For years money felt almost free, and perhaps collective memory forgot its price. The government cannot offset such a gap alone. Eleven billion euros cannot simply reappear through public intervention. This crisis highlights the limits of state support and shared responsibility among bankers, constructors, lenders and buyers. Another concern deepens the issue : we lack reliable statistics on housing output. Sound figures are more than five years old. We debate intensely without solid data. My recommendation remains simple : bring statistics, measure properly, then design policy. Without accurate information, overdebated topics risk resting on fragile foundations, and strategic choices may miss their target.

What risks and opportunities define the coming years ?

The primary risk concerns public finances. Over the past five years, extensive public spending cushioned recessionary pressures. Debt levels remain manageable, yet intervention reached significant magnitude. A misconception persists that the state can indefinitely support everyone. Such belief threatens our fiscal room for manoeuvre. Without a gradual slowdown in spending, including fiscal expenditure, future investment capacity may erode. Luxembourg must spend less and invest more. Artificial intelligence, defence, energy transition and digital transformation require capital and strategic focus. Fiscal rigidity would constrain these ambitions. Another structural risk relates to exposure to global financial cycles. Given our specialisation, a financial crisis would inevitably transmit shockwaves. On the opportunity side, I identify potential in building a defence, industrial and technological base. The space sector already exists. Stakeholders active in data sovereignty form another pillar. European saving and investment union initiatives could reinforce this trajectory. Early adoption and coordinated action might restore momentum. Luxembourg’s scale does not preclude ambition. With clear priorities and restored fiscal discipline, strategic positioning in emerging sectors could redefine the country’s growth path.