Luxembourg's 2023 economic review, and what's ahead

It was a tough year for the economy and its workers, with Luxembourg officially entering a recession in 2023. However, a small yet stable recovery is anticipated in 2024.

Based on their findings and report, here are the top things you need to know:

Industrial production stabilised:

Industrial production in Luxembourg saw a significant decline in 2023, mirroring trends across Europe. With a 5.9% decrease, Luxembourg joined the ranks of the worst-performing eurozone countries in this regard, alongside the Netherlands (-7.5%) and Belgium (-5.5%). The industrial workforce remained relatively stable, with a modest 0.6% growth in employment compared to the eurozone average of 1.0%.

Looking ahead to 2024, while some sectors like steel and computer/electronic products show signs of recovery, others like machinery and equipment will experience a downward trend. Declining raw material prices may provide some relief, although supply chain tensions persist, particularly given the instability in the Red Sea region.

Boost in car sales:

Following a three-year decline, car sales in Luxembourg experienced a notable rebound in 2023, surging by 17%, outpacing the Eurozone average. Despite this boost, overall registrations remained 10% below 2019 levels.

Looking ahead, the European Automobile Manufacturers Association (ACEA) forecasts a modest 2 to 3% increase in sales per year.

Diesel makes up 70% of fuel sales:

Meanwhile, fuel sales rebounded slightly at the beginning of 2023 following a decline in 2022, but this recovery was short-lived. Overall, sales fell by 1.5% compared to 2022.

Despite this decline, service station turnover remained steady, likely offset by increased tobacco sales, a trend reflected in the excise revenue collected by the state.

Decline in real estate prices:

Luxembourg's real estate prices experienced their sharpest decline in the Eurozone in the summer of 2023, plummeting by 6.3% over the quarter and 13.6% over the year. This downturn was particularly pronounced for old properties, with houses and apartments witnessing declines of 7.8% and 6.3%, respectively, over the quarter.

New apartments also saw a decrease (-4.2%). Additionally, Luxembourg recorded the largest drop in housing transactions over the year, with a staggering decline of around 40% in the 3rd quarter compared to the previous year, according to data published by Eurostat.

Read also: What can we expect from the housing market in 2024?

Job losses soar alongside bankruptcies:

Despite a 7% decrease in bankruptcies in Luxembourg last year, job losses surged by nearly 40%. This spike can be attributed to a rise in bankruptcies within the construction sector, which accounts for a significant portion of employment.

The construction crisis led to approximately 160 bankruptcies in 2023, marking a 37% increase from 2022, and resulting in nearly 1,200 job losses, a staggering 63% increase. The situation worsened towards the end of the year, with the last quarter of 2023 witnessing twice as many layoffs due to bankruptcy in construction compared to the previous quarter.

Outside of construction, job losses linked to bankruptcies also saw an increase compared to 2022 but remained close to the average observed over the last decade.

Last year, new business registrations plummeted by 20% compared to 2022, reaching their lowest point since 2012. In contrast, in the Eurozone, new business registrations increased by 7% by the end of the first 10 months of 2023.

More taxes collected

In 2023, tax revenue collected, excluding social contributions, saw a 7.7% increase over the year. This growth was primarily driven by taxes on households (+12%), excise duties (+13%), and taxes on companies (+18%). The notable surge in corporate taxes can be attributed to significant tax balances from previous fiscal years. Excluding these balances, corporate taxes would have only grown by 1%, resulting in a slower total revenue growth of +5%.

VAT revenue stagnated at +0.1%, impacted by temporary rate reductions. Subscription tax revenue experienced a significant decline from the end of 2022 to mid-2023 but has since rebounded, following the evolution of investment fund assets. However, revenue from rights registrations witnessed a sharp decline throughout 2023 (-52%), driven by reduced real estate transactions.

Looking ahead, tax revenues are expected to remain sluggish in 2024, according to the latest forecasts from STATEC.

Read also: Tax cuts in 2024: This is how much more you'll earn