Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Liechtenstein on March 21, 2025.
After exhibiting significant volatility in 2020-23 with the pandemic and spillovers from Russia's war in Ukraine, growth has resumed, albeit at a low rate. After negative growth in 2022 and 2023, output is estimated to have increased by 0.5 percent in 2024. After peaking in August 2023, inflation has come down and recently receded to below 1 percent. The labor market remains tight with the unemployment rate well below the EU average. The Liechtenstein's fiscal framework has continued to deliver sizable surpluses, contributing to large and growing buffers. The financial sector contributes about 20 percent of GDP and banks are liquid and well-capitalized.
The economy is recovering moderately. GDP growth is expected to gain momentum in 2025. A recovery in external demand for industrial products and services and a steady increase in financial services are expected to support growth reaching 1 percent in 2025. Inflation is expected to remain below 1 percent, with risk of settling at very low levels in the medium term. The labor market is expected to remain tight and support private consumption and growth, with unemployment declining slightly in 2025. Over the medium-term, the economy is projected to achieve a potential growth rate of 2 percent—somewhat below the pre-pandemic average growth of 2.5 percent.
Risks to the outlook are tilted to the downside. As a highly open economy, a potential regional or global slowdown or accelerated geoeconomic fragmentation would adversely affect exports and impede recovery. This could be compounded by safe-haven flows to Switzerland. As Liechtenstein uses the Swiss franc, appreciation of the franc could affect Liechtenstein's exports. While households have high savings, elevated indebtedness poses risks in the event of a large shock. On the other hand, large fiscal buffers provide room to respond.
Executive Board Assessment [2]
Executive Directors agreed with the thrust of the staff appraisal. They welcomed the first Article IV Consultation with Liechtenstein and commended the authorities' prudent economic policies that have delivered strong fundamentals, including large fiscal buffers and virtually no public debt. Directors noted, however, that risks to the outlook—stemming from a potential global slowdown, geoeconomic fragmentation, and global policy uncertainties—are tilted to the downside. Against this backdrop, Directors encouraged policies to enhance Liechtenstein's economic resilience further while addressing long‑term challenges related to aging, climate, and growth‑enhancing investment needs.
Directors welcomed the strong fiscal position and the fiscal framework that has allowed some flexibility in responding to shocks, including using automatic stabilizers. In view of the budget rule's tightening bias, which has delivered continued large surpluses during periods of economic downturn, expanding the focus of fiscal policy—beyond further accumulation of buffers—to ensure timely responses to shocks while addressing longer‑term spending needs could be considered. Directors concurred that identifying, costing, and prioritizing large investment projects would strengthen medium‑term budgeting and looked forward to progress in this regard.
Directors emphasized that continued close supervision of Liechtenstein's large and complex financial sector is needed to ensure financial stability and contain risks. They welcomed that the banking sector remains liquid and well‑capitalized, with strong asset quality. Noting high household indebtedness, Directors encouraged the authorities to continue calibrating macroprudential policies in line with financial stability risks. Given the financial center model with a large international client base, they urged continued vigilance and sustained compliance with AML/CFT international standards. Further mitigating prudential risks in the fiduciary sector would also be important.
Directors stressed the importance of structural policies to address labor market imbalances, as well as cybersecurity and climate risks. They supported the authorities' focus on addressing skills shortages, increasing the labor supply, and sustaining productivity growth, including measures to boost labor participation by women and older workers. Addressing future pension system financing needs is critical to preserve sustainability. Directors encouraged the authorities to mitigate cybersecurity risks further and to advance their climate agenda.
Directors stressed that timely data are key to greater transparency and enhanced policymaking. They encouraged the authorities to close gaps in macroeconomic statistics, including by leveraging IMF technical assistance.
