Consumer spending will drive economic recovery in 2021, the European Commission said in its winter forecast Matic Zorman

Consumer spending will drive economic recovery in 2021, the European Commission said in its winter forecast Matic Zorman

The Commission estimates that grand duchy’s gross domestic product shrank 3.1% last year, calling the virus crisis “the sharpest decline since the financial crisis in 2009 for the Luxembourg economy.”

And in 2021, Luxembourg will barely make up for the losses with growth of 3.2% projected in the winter forecast. “As containment measures are assumed to continue into the first half of 2021, the rebound is set to take place mainly in the second half of the year,” the Commission said, adding that the recovery would be driven by an increase in consumer spending and investment.

National statistics office Statec previously said that household had accumulated around €1.2bn in extra savings because of a lack of spending opportunities caused by the pandemic. It said it expects consumer spending to grow 8% this year compared to 2020.

For 2022, the European Commission expects further economic growth of 4.3%, if the majority of virus restrictions is lifted by then.

The Commission said a main risk to recovery is the economic crisis from the pandemic spilling over into the financial sector. The impact of Brexit on financial services could also hamper growth, it said.

For the euro area as a whole, the Commission said GDP would recover 3.8% this year and in 2022, compared to a drop of 6.8% in 2020.

The EU economy as a whole lost 6.3% of GDP in 2020, the Commission said, with growth of 3.7% anticipated this year and 3.9% in 2022.

Ireland is the only EU country to have escaped an economic crisis, according to Commission data, with GDP growing 3% in 2020. The countries worst hit by the pandemic were Spain (-11%) and Greece (-10%).

The Commission’s forecast compares to December 2020 data from Statec saying the Luxembourg economy contracted by 3.5% in 2020 and expecting a 4% rebound this year.