The attack by Russia on neighbouring Ukraine and the subsequent rise in energy prices has required experts to temper their projections for economic growth in 2022. Luxembourg’s GDP growth expectations have nearly been cut in half, down to 2% from the 3.5% estimated by Statec last autumn.
In spring 2022 inflation in Luxembourg reached its highest level since 40 years. The national statistics bureau expects inflation in the grand duchy to reach 5.8% in 2022 and to decrease to 2.8% in 2023. This slowdown is related to an expected loss of momentum in oil price increases while core inflation is expected to remain strong.
Under normal conditions, salaries should be adjusted for inflation in July, Statec said. However, the government, employer groups and labour unions in March agreed to postpone a potential second indexation payment due this year after wages already rose on April.
Luxembourg does not have a strong dependence on Russia in terms of trade in goods and services, said the Statec report published on Tuesday. The effects on the grand duchy's economy will therefore be indirect and will include rising interest rates, unpredictability in the financial markets and inflation.
The finance sector is not energy intensive and should be spared from suffering significantly from the effects of the war in Ukraine, Statec said. The industrial, construction and certain trade sectors will be affected the most by the crisis.
On a more positive note, employment in the grand duchy remains on an upward trajectory. Unemployment was estimated at 4.7% in March 2022, the lowest level since December 2008. While job creation has been improving in Luxembourg, Statec said that recent data shows that this might change. A downward revision is possible in 2023 with employment growth possibly falling by 1%. The projections for 2023 are between 4.5% and 6.6%.