In 1876, English metallurgist Sidney Thomas invented a refining process that led to the development of the steel industry in Luxembourg and the founding of the Arbed company in 1911. In 2001, Arbed merged with Aceralia and Usinor to form Arcelor, the worldís second-largest steel producer, which is headquartered in Luxembourg. The iron and steel industry comprises a little less than 10.6% of the overall economy.

There has been a relative decline in the steel sector, offset by Luxembourg's emergence as a financial center. The financial sector in 2004 made up 28.9% of Luxembourgís economy, while other services such as health, public administration, and education comprised 16.4%. Banking is especially important. In May 2005, there were 161 banks in Luxembourg, with 22,711 employees. Political stability, good communications, easy access to other European centers, skilled multilingual staff, and a tradition of banking secrecy have contributed to the growth of the financial sector. Germany accounts for the largest single grouping of banks, with Belgian, French, Swiss, and major U.S. banks also heavily represented. Total banking assets exceeded $725 billion in April 2005. Approximately 13,569 holding companies with 36.4 billion EUR in capital are established in Luxembourg.

Government policies promote the development of Luxembourg as an audiovisual and communications center. Radio-Television-Luxembourg is Europe's premier private radio and television broadcaster. The government-backed Luxembourg satellite company SociÈtÈ EuropÈenne des Satellites (SES) was created in 1986 to install and operate a satellite telecommunications system for transmission of television programs throughout Europe. The first SES "ASTRA" satellite, a 16-channel RCA 4000, was launched by Ariane rocket in December 1988. SES presently operates 12 satellites. ASTRA 1H is an advanced satellite with a return channel capacity in the Ka band frequency range enabling two-way satellite communications directly to usersí terminals.

Luxembourg offers a favorable climate to foreign investment. Successive governments have effectively attracted new investment in medium, light, and high-tech industry. Incentives cover taxes, construction, and plant equipment. The recent European Union (EU) directive on services supplied electronically has caused a number of companies to look to Luxembourg, with its relatively low value-added tax (VAT) rates, as a possible location for directing their European operations. U.S. firms are among the most prominent foreign investors, producing tires (Goodyear), chemicals (Dupont), glass (Guardian Industries), and a wide range of industrial equipment. The Department of Commerce's Bureau of Economic Analysis reports that total U.S. direct investment in Luxembourg (on a historical cost basis) was nearly $67 billion at the end of 2003. Foreign direct investment (FDI) data for Luxembourg must be interpreted cautiously, however, because of Luxembourg's role in financial intermediation, particularly involving Luxembourg-based holding companies.

Labor relations have been peaceful since the 1930s. Most industrial workers are organized by unions linked to one of the major political parties. Representatives of business, unions, and government participate in the conduct of major labor negotiations.

Foreign investors often cite Luxembourg's labor relations as a primary reason for locating in the Grand Duchy. Unemployment in 2004 was 4.2% but rose to 4.6% in April 2005. Luxembourg's small but productive agricultural sector provides employment for less than 1.3% of the work force. Most farmers are engaged in dairy and meat production. Vineyards in the Moselle Valley annually produce about 12.3 million liters of dry white wine, most of which is consumed locally.

Luxembourg's trade account has run a persistent deficit over the last decade (-36772 million EUR in 2004), but the country enjoys an overall balance-of-payment surplus, due to revenues from financial services. Government finances are strong, and budgets are normally in surplus. The government recently announced a 71.2 million-euro budget surplus for 2004.