For the first quarter of this year, Statec estimated GDP growth of 4% compared to the year before, with the economy growing 1.2% compared to the previous quarter at the end of 2021, which was still marred by pandemic restrictions.
The European Commission last week for Luxembourg, from 3.9% for 2022 to 2.2%. and 2.7% for next year, down from an earlier forecast of 2.9%.
The “economic downturn is confirmed,” Statec said in a report published on Tuesday. “Three months have not passed since the beginning of the war in Ukraine. As early as March, business surveys showed a clear decline in economic confidence in Europe.”
The volume of retail sales was down 0.7% in March compared to the month before in Luxembourg, which includes an 11% drop in fuel sales. The grand duchy’s service stations were hit harder than those elsewhere in the EU, with fuel sales dropped just 3% across the eurozone.
Uncertainty is even weighing on Luxembourg’s financial sector--. “The decline in investors’ confidence in the stock market, with a weaker growth outlook and faster-than-expected monetary policy tightening, has weighed on undertaking for collective investment in Luxembourg,” Statec said.
Assets under managed, after reaching an all-time high of €5.8trn at the end of last year, dropped 6.5% during the first quarter of 2022. “This drop in investment fund assets is having an impact on activities and value added of financial auxiliaries and custodian banks in Luxembourg, as well as on financial services.”
Shortages
In the automotive sector, vehicle vendors face a difficult recovery from the pandemic, which saw sales collapse during lockdown. Materials and component shortages are leading to long delivery delays and the number of passenger cars sold fell by 12.5% during the first quarter of this year compared to last year, a period which includes the Autofestival.
During the festival, dealerships usually make around a third of their annual turnover and the decline doesn’t bode well for the rest of the year.
Shortages are likely to hit the construction sector, too, which boasts full order books, according to Statec.
Industrial production fell more sharply in Luxembourg (-3.2% over one month) compared to the euro area (-1.8% with a drop of 5% in Germany). At the same time, the lifting of most pandemic restrictions boosted confidence in a number of sectors, including the restaurant industry.
“These retailers are expected to face multiple shocks from higher energy, food and labour costs,” Statec said. “Price in hotels, restaurants and cafés have already risen by 5.5% year-on-year in April.”