Despite government support measures for both the economy and households, Luxembourg's economy is showing signs of slow-down, according to the latest economic scoreboard from the Idea Foundation.

After a downturn in activity in the first half of the year, the Luxembourg economy continues to face challenges, with economic activity and the labour market bearing the brunt of an unfavourable economic climate.

The Idea Foundation warns that several indicators are in the red. Although the peak in inflation has passed, current price levels persistently remain well-above pre-crisis levels.

As of October 2023, particularly in the wake of a 7.9% year-on-year increase in food prices, the average year-on-year price increase stands at 3.2%, slightly down from 4.05% the previous month.

"The decline in activity is impacting all major sectors, with the construction sector experiencing a prolonged slump due to tighter loan conditions and a decline in orders," Idea notes.

The second quarter of 2023 saw a 15.7% drop in mortgages granted to resident households for properties in Luxembourg compared to the previous quarter, representing a significant year-on-year decrease of 48.8%.

Job market concerns

In September 2023, the number of resident jobseekers under 25 increased by 28.1% compared to the previous year.

The growth rate in salaried employment has slowed markedly, from 3.3% in 2019 to 1.5%, while simultaneously, the number of job vacancies is on the decline.

Risk of recession

As of the second quarter of 2023, Luxembourg's GDP experienced a contraction (-0.1% compared to the previous quarter and a substantial 1.7% decline compared to the same quarter in the previous year). These figures, though provisional, mark three consecutive quarters of GDP decline, intensifying the risk of recession this year.

A recent Chamber of Commerce barometer reveals that business activity is slowing for approximately one-third of companies, a trend expected to persist over the next six months. The International Monetary Fund (IMF) aligns with these concerns, predicting a recession for Luxembourg by the end of 2023.

But the Idea Foundation concludes its economic scorecard on a hopeful note, with two slightly more encouraging statistics: consumer confidence and the value of fund assets are both on the rise again.