In its economic report issued on Monday, STATEC presented its analysis of the current economic landscape in Luxembourg.
One notable aspect is the persistence of rising prices, a challenge faced not only by Luxembourg but the entirety of Europe. The return to a more normal rate of price growth is anticipated, albeit with some waiting time. The beginning of 2023 witnessed a decline in inflation both in Luxembourg and the eurozone, a trend that continued through the spring. However, underlying inflation remains robust in the Grand Duchy and the eurozone as we transition into the spring season.
STATEC points out that “food prices have reached unprecedented levels since the beginning of the year,” and the two wage indexations in February and April are expected to contribute to inflationary pressures in the services sector in the upcoming months. The baseline scenario projected by STATEC suggests an average price increase of 3.9% in 2023 and 2.5% in 2024, approaching the 2% target.
As for wages, the recent wage indexations have led to an upward trajectory in wage costs. Although there was a slowdown in late 2022, STATEC anticipates an acceleration driven by indexation in 2023. For the entire year of 2023, average wages are expected to rise by 5.8%, followed by a 3.7% increase in 2024.
The next wage indexation is expected to be triggered in Q3 of 2023.
While unemployment remains historically low, there are indications of a potential rebound. The start of the year showed a less favourable employment situation, particularly in the business services and construction sectors, where a slowdown was confirmed. However, the shortage of labour is expected to persist, albeit at reduced levels.
Against the backdrop of sluggish economic activity, employment growth is projected to decelerate in 2023 and 2024, resulting in a moderate increase in unemployment. According to STATEC’s estimates, the unemployment rate is forecasted to reach 5.1% in 2023 and 5.3% in 2024, compared to the current rate of 4.9%.
