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PESTEL analysis of Luxembourg (Country profile)

PESTEL analysis of Luxembourg (Country profile)

This is a detailed PESTEL analysis of Luxembourg (Country profile). It aims to explore how the country is affected by macro factors and how it responds to new opportunities and challenges. Luxembourg is one of the smallest countries in the world and is officially known as the Grand Duchy of Luxembourg.

Political forces that affect Luxembourg

Luxembourg is a democracy and a constitutional monarchy with hereditary succession. It is headed by a constitutional monarch. The grand duke of Luxembourg is the monarchical head of state who has the executive power, though the prime minister and his cabinet exercise the actual executive power (Lambert, 2021).

Luxembourg shares borders with Belgium, France, and Germany. It houses a number of key institutions of the European Union. It is also a member of several international organisations such as UN, WTO, IMF, IOC, OECD, WHO, EIB, and IFC. Luxembourg City is its capital.

Luxemburg is a politically stable country. It is a very safe place to work and live as well. However, theft, corruption, vandalism, burglary, and bribery have increased in the last several years.

Economic forces that affect Luxembourg

Luxemburg is a small country with a small GDP. In 2020, its GDP was worth around $73.26 billion (Trading Economics, 2021). However, the GDP worth may be misleading as Luxemburg is one of the richest countries in the world in terms of GDP per capita.

Luxemburg’s top exports are iron blocks, rubber tires, iron sheet piling, and cars. On the other hand, its top imports are refined petroleum, broadcasting equipment, planes & helicopters, and spacecrafts. Its top trading partners are France, Germany, Belgium, the Netherlands, the USA, and Italy (OEC, 2021).

Banking and financial service, agriculture, steel, tourism, and information technology are some of the top industries in Luxemburg. However, many analysts argue that the country is over reliant on the financial sector which may make it vulnerable during the time of economic difficulties. Therefore, they recommend economic diversification though it comes up with certain challenges.

The economy was affected by the global lockdowns in 2020/21. In response, the government introduced in March 2020 a substantial and generous economic support programme to help companies and individuals deal with the economic challenges. However, it is worth noting that Luxemburg invests less in R&D compared to the EU average. Similarly, labour shortage is a problem for the country as well.

Social forces that affect Luxembourg

Another issue to discuss in the PESTEL analysis of Luxemburg (Country profile) is the country’s social environment. Luxemburg’s current population is 636,644 (Worldometer, 2021). It has three official languages i.e. French, German, and Luxembourgish with many people being trilingual. It has a developed economy and people enjoy a high standard of living. Many women have joined the labour force in the last several years and they have full political and economic equality.

Students do not need to pay enrolment fees if they studied at the only public university, the University of Luxemburg, and the tuition fees are very affordable for most of the programmes (European Commission, 2021). It is worth mentioning that Luxemburg has a small number of Higher Education institutions. Many students attend a university in France or Belgium.

Luxemburg has a comprehensive welfare system to provide support particularly in the areas such as early retirement, disability, and healthcare. However, it has been advised by OECD and European Commission to reduce its welfare packages to keep the economy sustainable (Bertelsmann Stiftung, 2021). Likewise, social inequality is also a challenge for it.

Technological forces that affect Luxembourg

Luxemburg is a technologically advanced country with a highly developed ICT infrastructure. It has ultra-high-speed internet and has become an excellent place for data management activities, communication, energy, and transportation resulting in tech giants flocking to it.

E-commerce is on the rise, so is the use of social media. Facebook, Twitter, Pinterest, Tumblr, YouTube, and Instagram are the top social media networks. Luxemburg has plans to transform itself as an advanced digital society. However, it needs to work more on cyber security.

Environmental forces that affect Luxembourg

Luxemburg is a beautiful country. The fortifications of the Old City of Luxemburg and its ancient quarters are registered as UNESCO world heritage sites. Over 1 million tourists visit the country each year. The government has taken a number of initiatives to improve the environmental conditions. However, it needs to do more to deal with heavy road traffic and the lack of renewable energy resources.

Legal forces that affect Luxembourg

Luxembourg has a written constitution. Its Labour Code deals with employment relationships. Employers must provide employees with written contract. Employees have the right to join trade unions. Employment discrimination is prohibited on several grounds.

We hope the article ‘PESTEL analysis of Luxembourg (Country profile)’ has been useful. You may also like reading PESTEL analysis of Belgium and PESTEL analysis of Germany. Other relevant articles for you are:

PESTEL analysis of France

SWOT analysis of the USA’s information technology (IT) industry

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Last update: 21 July 2021


Bertelsmann Stiftung (2021) Luxemburg, available at: (accessed 20 July 2021)

European Commission (2021) Luxemburg, available at: (accessed 20 July 2021)

Lambert, V. (2021) Luxemburg, available at: (accessed 21 July 2021)

OEC (2021) Luxemburg, available at: (accessed 15 July 2021)

Trading Economics (2021) Luxemburg GDP, available at: (accessed 21 July 2021)

Worldometer (2021) Luxemburg population, available at: (accessed 20 July 2021)

Author: Joe David

Joe David has years of teaching experience both in the UK and abroad. He writes regularly online on a variety of topics. He has a keen interest in business, hospitality, and tourism management. He holds a Postgraduate Diploma in Management Studies and a Post Graduate Diploma in Marketing Management.

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