POLITICS & INSTITUTIONS - ECONOMY

Statec outlook

Tripartite measures should help ward off 2023 recession risks



End-of-year opinion polls point to “very negative signals regarding household consumption, which are particularly worried about high inflation,” per Statec Matic Zorman/Maison Moderne

End-of-year opinion polls point to “very negative signals regarding household consumption, which are particularly worried about high inflation,” per Statec Matic Zorman/Maison Moderne

Luxembourg’s tripartite negotiations will ward off recession risks in 2023, even despite historically high inflation in Europe and an energy crisis linked to the war in Ukraine, per Statec’s latest forecast.

Following a 3% GDP increase this year, the eurozone is likely to stagnate into 2023, according to a Statec sectoral outlook published Monday morning. Already on the heels of a difficult pandemic, supply problems befell industry and construction in 2021, although in 2022 the sectors faced a demand drop.

Meanwhile for banks, a drop in loan demands plus stricter granting conditions means they won’t necessarily capture the opportunity potentially gained from increased interest rates.

Real GDP growth for Luxembourg is expected to be 1.7% for end 2022 and 1.5% for 2023. Households, faced with high inflation concerns, point to a bleak end of year.

In a recent interview with Delano, Statec economic advisor Ferdy Adam explained that the gas market is “less tense” than it was end-summer. “Market prices have gone down but, on the other hand, the electricity distributors and gas distributors have already bought a lot of gas and electricity at these expensive wholesale prices in advance, so the margin for lower prices next year is not so big. But still, I think we can say the market is more relaxed than it was three months ago,” he explained.

Less pronounced in Luxembourg

Runaway inflation should be somewhat less pronounced in Luxembourg, however.

“The outlook for the second half of the year is bleak, with opinion polls pointing to a continued deterioration in the business climate and very negative signals regarding household consumption, which are particularly worried about high inflation,” according to the Statec report. “The measures aimed at limiting the effects of the rise in energy prices, negotiated within the framework of the tripartite agreements, will provide major support for the purchasing power of households and businesses affected by the energy crisis.”

Statec expects that purchasing power will increase by 2% into 2023. Public deficit, meanwhile, could reach 3% of GDP next year.

While unemployment is expected to rise into 2023, there’s currently a historically high level of vacancies. “Employment should decelerate strongly in the eurozone,” Adam explained, and this slowdown should also impact the grand duchy.

“While in 2022 the labor market is still buoyed by the post-pandemic recovery, the outlook for 2023 is bleaker,” per Statec’s report. “The virtual stagnation in activity forecast for the euro zone would also be accompanied by stagnation in employment.”

That said, it’s anticipated that slowdown would be less marked in the grand duchy: the projection here is that unemployment may reach 5.1% of the active population (versus 4.8% in 2022). 

Economic outlook 2025

The Luxembourg government on Friday launched a public campaign, inviting the general public to share its ideas on three future scenarios, as outlined by Luxembourg Stratégie, which could correspond to the grand duchy by 2050.

The campaign runs through 1 January 2023, and anyone over 16 years of age, whether resident or cross-border workers, can participate in the survey. Following the initial questionnaire, 55 respondents will be given the chance to discuss in person with economy minister Franz Fayot (LSAP) ideas Luxembourg 27 years from now.

A final vision and strategy will be presented on 28 March 2023.