According to Statec’s recent publication on the state of Luxembourg’s economy, business activity in the grand duchy was favourable at the start of the year, despite the initial recession experienced in the euro area in this period. Luxembourg’s financial services and information and communication services fared particularly well.
At the global level, Statec expects GDP to grow by 6% in 2021, after falling by 3% last year. This year, activity in The United States is expected to regain its pre-crisis level, others later.
In the euro zone, growth is expected to be 5%, after a larger drop of 6.5% in 2020. Luxembourg had held up at the end of 2020 and the beginning of 2021, unlike the eurozone, but the dynamics for the second half of the year do not seem "as favourable" according to Statec. Data related to this matter is expected on 30 September.
In the meantime, covid-19 continues to weigh on the activities of Luxembourg companies, even if its impact seems to be diminishing month after month. In August 2021, this was still the case for 30% of companies in industry, 40% in construction and 60% for non-financial services companies.
Secondment, diesel prices: shadows on the horizon
There are some shadows hanging over the 2021 recovery such as the risk of a surge in covid-19 cases, the supply problems affecting the industry and the difficulties faced by Chinese company Evergrande.
In some sectors, a drop in secondments is affecting employment. This is due to the entry into force on 31 December 2020 of a European regulation stipulating that a person carrying out more than 25% of his work from his place of residence must be affiliated with the social security system of the country. This will result in 4,000 fewer posted workers in Luxembourg between the third quarter of 2019 and the second quarter of 2021. This mainly affects transport, which employs 40% of posted workers in the grand duchy.
If salaried employment increases by 4.5% in Luxembourg over one year in the second quarter of 2021 by removing posted workers, it only increases by 3.7% when included. The difference would even be 1.5% if only cross-border workers are considered.
The price of diesel, "at its highest since 2012", is also weighing on the economy. "The price of crude oil has been boosted by the fall in US production following Hurricane Ida and the gradual recovery in oil demand," explains Statec. "At $75 per barrel, however, the price of Brent is still well below its end-2012 levels."
Resilience of banks, recovery of aviation
The banking institutions, for their part, remain stable after the sharp decline between 2017 and 2019. There are 126 banks currentlyactive on the market, including 9 Luxembourg, 21 German, 15 Chinese and 14 French. Two less than a year ago. Since the beginning of 2020, five banks have set up shop and four have stopped their activities. Employment is also stable: +0.6% between the first and second quarters and +0.3% in one year. Balance sheets grew by 7% year-on-year (after +5% in 2020) with an increase in interbank and household loans.
In the airline sector, fuel consumption is returning to pre-crisis levels, supported by freight. It grew by 6% in 2020, while the number of passengers fell by 67%. Since March 2021, freight has been slowing down while passenger numbers have been on the rise.
This article was originally published in Paperjam. It has been translated and edited for Delano.