“Luxembourg’s economy seems unable to avoid a contraction in 2023", retains a working paper from the National Economic and Financing Committee (CEFN) addressed at future government head Luc Frieden. The CFEN brings together representatives from a variety of institutions, including the National Institute of Statistics and Economic Studies (STATEC), the Financial Sector Supervisory Commission (CSSF), the tax administration, and the customs authority, to name but a few.
The footnotes of this paper, which RTL acquired, provide explanations as to what this exactly means: there is a substantial risk for a recession amounting to -0.8% of GDP at the end of the year. This forecast envisions Luxembourg’s economy to still grow after September. If this is not the case, then the recession is expected to be even more considerable.
According to the CEFN forecast, GDP will grow by 1.5% next year. The latest STATEC predictions announced 1.5 and 2.5% growth in 2023 and 2024 respectively. The recession is primarily attributed to the financial sector, industry, and construction.
The CEFN expects there to be one wage indexation per year over the next four years. The inflation rate is meanwhile forecast to again attain 3.4% in 2025 when the current tripartite measures expire, this after supposedly falling to 2.5% in 2024. As for the evolution of public finances, the CEFN working paper contains the same figures as the 2024 draft budgetary plan sent to Brussels in mid October, and which are considerably worse when compared to the ‘stability programme’ from spring.
It follows that the public deficit will increase to €1.5 billion, or 1.9% of GDP, this year. If policies remain unchanged, the expected deficit for 2024 will be €2.3 billion, or 2.7% of GDP. In comparison to GDP the budget figures are very likely to worsen further once the STATEC publishes the latest growth forecast in a couple of weeks.
The CEFN has also issued a warning over a number of risks associated with the evolution of public finances, which are primarily triggered by taxation changes of multinational corporations that will soon take effect.
The working paper sent to the Chamber of Deputies further contains the evolution of state revenues (as of 30 September), which Finance Minister Yuriko Backes was thus far unable to present due to the elections. The government received a total of €19.2 billion, a 5% increase from last year. Spending meanwhile increased by 15% to attain €19.2 billion this year.
The real estate and construction crises have also taken a toll on revenue made from registration rights, which, at €200 million, are just half as high as they were by the end of September last year.
