Energy has pushed up prices in recent months accounting for almost half of overall inflation in both Luxembourg (4.1%) and the eurozone (5.0%). The impact of these disruptions on the economy will depend on how long they last, says Statec. Photo: Shutterstock

Energy has pushed up prices in recent months accounting for almost half of overall inflation in both Luxembourg (4.1%) and the eurozone (5.0%). The impact of these disruptions on the economy will depend on how long they last, says Statec. Photo: Shutterstock

The spread of covid-19’s omicron variant appears to have a lesser impact in terms of hospitalisations but its effects on the economy will be felt this year with inflation and recruitment difficulties identified as the main threats, says statistics bureau Statec.

In a monthly report on the state of Luxembourg’s economy Statec highlights that despite a sharp rise in infections, the health impact of the omicron variant seems to be limited. Access to anti-coronavirus vaccines and symptoms suffered by people infected with omicron appearing less severe stand out as the main contributing factors.

However, if the current supply chain difficulties and pressure on prices were to last, this could potentially pose a threat to economic activity. Inflation and issues with supply are likely to weigh on Luxembourg’s economy in 2022. Shortages in certain materials and components continue to limit production in manufacturing and construction as well as retail.

“The disruptions linked to the health crisis are hampering the recovery in supply, while we are also seeing excess demand for goods, leading to an increase in input prices and transport costs,” says Statec in its report.

Difficulties caused by the pandemic could result in inflation as shortages and pushing up input prices affect production costs which in turn is passed on to the consumers. Energy has pushed up prices in recent months accounting for almost half of the overall inflation in both Luxembourg (4.1%) and the eurozone (5.0%). The impact of these disruptions on the economy will depend on how long they last, says Statec.

Luxembourg’s job agency Adem reported 10,000 vacancies in 2021 and although unemployment levels are below pre-pandemic levels employers are still having difficulties finding personnel. The job vacancy ratio--the ratio of vacant positions to all positions--rose to 2.3% in the fourth quarter of 2021, up from 1.5% before the health crisis. In a press conference last week, the Adem said it would modify its training sessions to help job . 

A positive indication from Statec’s report is that household savings in Luxembourg remain high. Although they have been falling since the second quarter of 2021, they remain above pre-crisis levels. “In Luxembourg it stabilised at 20% of disposable income while falling to 15% on average in the eurozone,” highlights the report. This points towards a possibility of increased spending once restrictions related to the pandemic are lifted, which in turn would have a positive effect on the economy.