If the pandemic were to slowly come to an end, with vaccinations being rolled out swiftly and businesses resuming activity in due time, Luxembourg’s real growth could bounce back to 4% in 2021, according to calculations made by the Service Central de La Statistique et des Études Économiques (STATEC).
For the eurozone’s GDP as a whole, STATEC expects a dynamic recovery of 4.2% in 2021 and 4.9% in 2022, before slowing down to 1.5% in the following two years. The first two quarters of 2021 are still marked by strong containment measures in most member states, but should these ease in the summer period, developments look promising. Nevertheless, no alternatives can be ruled out.
Oxford Economics, on which STATEC bases its economic assumptions, has developed two alternative scenarios, alongside the central scenario of 4% mentioned above, which remains the “most probable”.
In the optimistic scenario, the restrictions weighing on certain sectors with strong physical interaction would start to be lifted from the second quarter of 2021 (in the central scenario this would occur more gradually and mainly over the second half of the year).
In this case, the eurozone’s GDP would rebound by around 8% in 2021 instead of 4.3% in the central scenario. For Luxembourg, this would translate into an improvement in the economy, bringing the increase in real GDP to 7.0% and that of employment to 2.5%.
At the other extreme, if the pandemic continues, with new, more dangerous mutations of the virus appearing spontaneously and randomly, the restrictions should apply throughout 2021, activity could fall in the eurozone (-1% over the whole of 2021). ‘year). This would result in a slight drop in activity in the Grand Duchy of around 0.5%, a virtual stagnation of employment and a greater rise in unemployment.
In Luxembourg, the rise in consumer prices is expected to be around 1.7% over the year 2021, supported by the recovery in oil prices while overall inflationary trends should remain contained. In the medium term, the latter would be stimulated by a new index tranche in 2022 and by the economic recovery, gradually bringing inflation to 2%.
The wage share is expected to remain unchanged due limited productivity gains and some post-crisis wage moderation, similar to the eurozone crisis in 2008.
