In a published on 22 August, the Luxembourg statistics bureau Statec delved deep into the socioeconomic conditions in the grand duchy, juxtaposing them with broader trends in the eurozone, revealing lasting and often critical impacts. Luxembourg faces a mixed economic landscape, the agency said.

Eurozone growth: genuine uptick or mere illusion?

The second quarter of 2023 witnessed a slight rebound in the eurozone’s GDP, marking a 0.3% quarter-on-quarter rise. However, closer scrutiny reveals that the growth, largely driven by Ireland’s surging 3.3%, may not indicate widespread economic recovery.

Notably, if Ireland’s numbers, often swayed by multinational corporation-related income transfers, are excluded, the growth rate for the rest of the zone dwindles to a mere 0.1%.

This leans more towards stagnation than a genuine rebound.

Stark contrasts across member states

Divergent economic performances echo throughout the eurozone.

France and Spain shine with respective growth rates of 0.5% and 0.4%. France’s aerospace exports have buoyed its figures, even as domestic demand wanes. Spain sees a resurgence in private consumption and maintained investment momentum.

Yet, for powerhouses like Germany and the Netherlands, the story is bleaker, with both grappling with recessionary conditions.

Rising household savings amid falling wages

A concerning trend is appearing with declining household consumption across most euro area states in the first half of 2023. The past year saw real wages, adjusted for inflation, decline across the eurozone.

With rising interest rates, .

The eurozone’s savings rate, which had been on the decline post-covid, has been climbing since late 2022.

Waning business confidence

Business confidence has experienced a downturn from May to July, especially impacting sectors like industry, construction and services. Luxembourg’s findings mirror the broader eurozone sentiments.

The composite purchasing managers index indicates a contraction since June, pointing towards a possible GDP decline in the upcoming third quarter.

China’s economic dilemma

China, once insulated from energy price hikes due to its Russian trade ties, now teeters on the brink of deflation.

Consumer prices dropped for the first time since 2021, with July marking a 0.3% year-on-year decline. This, paired with a dip in both exports and imports, underscores China’s complex economic challenges.

Luxembourg’s dwindling construction confidence

Construction confidence in Luxembourg continues its descent, mirroring trends across most eurozone countries.

Notably, in July 2023, over a third of construction companies in the grand duchy indicated a lack of demand, a significant increase from just 15% in July 2022. This percentage now surpasses that of the eurozone, where a quarter reported insufficient demand in July 2023, up from 20% the previous year--a disparity not seen in many years.

This is further substantiated by in the sector.

Unemployment rises in Luxembourg

In 2022, Luxembourg was one of the few eurozone countries where unemployment began to rise, and this trend has intensified in recent months, with rates reaching , up from 4.9% to 5% at the start of the year and 4.7% the year before.

The most significant contributors to the second quarter’s unemployment spike were those in construction, which saw a seasonally adjusted quarter-over-quarter growth of 34%. Conversely, the trade and health sectors observed a decrease in unemployment, by 3.7% and 4.3%, respectively.

In stark contrast, the eurozone’s unemployment rate holds firm at 6.4%, showcasing commendable stability in the face of economic challenges.

Inflation’s dual-edged sword

Since April, there has been a rising trend in service inflation in Luxembourg. As of July, it registered a year-on-year increase of +3.1%.

This is still relatively moderate, especially when considering the two indexation tranches introduced earlier in the year (in January and April).

However, a new wage indexation is set to come into effect during the third quarter of 2023, anticipates Statec. This will be in August or September 2023, contingent upon whether August’s inflation remains below 4.06%. If so, the subsequent month will see an automatic adjustment of +2.5% to salaries and pension payments.

Another element propelling service inflation in the year’s closing months is the fading impact of free after-school care and school canteens that began in the 22/23 school year. This currently reduces the annual inflation rate by 0.6%.

Additionally, the country has nearly maximised its potential for gas savings, with consumption figures almost mirroring those of the previous year.

In summary, Statec portrays the eurozone’s economic landscape with a mix of shades. While some states show promise, the broader trends suggest a delicate balance between growth and stagnation.