The Chamber of Commerce's Carlo Thelen, pictured at an event in May 2019, when the pandemic was a long way off
Photo: Jan Hanrion
As the coronavirus picks up speed in Luxembourg, the Chamber of Commerce’s director general, Carlo Thelen, is doubtful that economic recovery will be as smooth as predicted even though the grand duchy is in a good position to sit the pandemic out.
Luxembourg forecaster Statec predicts a contraction of the economy of around 6% in 2020 because of the coronavirus pandemic, followed by a rebound of 7% next year. But Thelen told Delano he was “cautious” about this prediction. “At the moment, I don’t think we can reach the 7%,” he said.
The rebound expected by Statec was mostly mechanical, Thelen said--a steep increase after a sharp decline largely due to the reopening of businesses following the economic downturn caused by lockdown and virus restrictions. “But this is a never-before-seen crisis,” he said.
“We are in a situation where we don’t know what will happen,” Thelen said, adding that the government’s first €8.8bn rescue package was designed thinking the pandemic might be over within six months. The package has since been stocked up to €10.4bn, in addition to €800m in the so-called “Neistart Lëtzebuerg” plan.
Despite the subsidies, an increasing number of businesses is asking for advice on filing for bankruptcy at the Chamber’s House of Entrepreneurship, Thelen said. “It’s worrying,” he said. “We fear that bankruptcies will rise.”
Luxembourg is heavily dependent on exports, Thelen said, and it’s not only the pandemic contributing to economic uncertainty. Political instability in Europe, the bloc’s relations with China, Brexit and the upcoming US elections all contribute to volatility, the Chamber of Commerce head said.
Despite the risks, Thelen said the grand duchy was “well-positioned” to weather the storm. “If we don’t make up for the losses in 2021, it’ll be 2022,” he said.
The government is planning on spending heavily next year to keep the economy going, making investments worth €2.75bn. Expenses of €21.7bn will weigh heavily on the state purse as revenue is expected to be lower, at €19.2bn.
“If that means that the level of debt will hover around the limit of 30% for a few years before going down again, then that is a better perspective than that of an ideological austerity programme or sacrificing innovation and investments,” finance minister Pierre Gramegna (DP) said when presenting the budget on 14 October.
Every euro invested will contribute 80 cents to GDP, Thelen said, adding that it remains to be seen whether that will be enough to lift the economy to pre-crisis levels.
“We know that we need to be patient,” he said of the longer-term implications of the virus. While Luxembourg has so far avoided a second lockdown, countries like Ireland and regions in other countries--such as Spain and the UK--have once again shut down any non-essential activities.
“The budget for 2022 will be more difficult than 2021,” Thelen said, with the pandemic expected to last well into next year. “Then it will really be about seeing who has the stamina to get through this crisis.”