Luxembourg’s economy will grow less than forecast in 2024

Luxembourg’s economy will grow less than originally forecast, the country’s official statistics agency Statk said on Wednesday, with GDP growth of just 1.5% this year before a stronger year in 2025.

It is below Forecasts published by Statec Two months ago, it projected economic growth of 2% in 2024 and 3% in 2025 – the same figures the Luxembourg government used in its 2024 budget.

GDP growth figures for 2024 are forecast to be 1.5% this year, and the 3% estimate for 2025 remains unchanged, though dependent on the path of inflation, the State said in its regular economic forecast – Note Its first 2024 – it was released on Wednesday.

In May, the European Commission estimated that the Grand Duchy’s economy would grow by 1.4% this year and 2% next year.

The State, however, emphasized caution in its GDP growth estimates, saying the scenario depends on both the international environment and domestic factors.

Much will depend on the path of inflation, Stattech said in its regular economic forecast – Note Its first 2024 – it was released on Wednesday.

Data for the first quarter of this year and data for the second quarter of the year show improvement in the euro zone, Statk reported, with global economic activity expected to grow by 3% annually in both 2024 and 2025.

„If this trend continues, it will lead to a relatively small increase in growth this year and a more pronounced one in 2025,” Statk said.

Statec reported that Luxembourg’s GDP rebounded sharply in the first quarter of 2024, with the financial sector in particular benefiting from an improvement in business sentiment.

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However, the construction industry is still struggling to recover, and while the prospect of lower interest rates should gradually revive demand, Stats warned that it will take time for construction activity to return to previous levels.

Inflation will be above 2%

Inflation is also forecast to slow in Luxembourg, with services and energy costs still contributing to overall price increases.

In fact, the report estimates that gas and electricity prices would increase by 17% and 30% respectively by the end of 2024 if only a fraction of the rate cap measures currently in place were lifted.

State revenue will experience a significant slowdown due to the combined impact of inflation, additional costs incurred by companies through the third automatic wage indexation in 2023, and adjustments to family income tax rates associated with four index brackets. Slowdown in state revenue growth.

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Against this background, Statk predicts that the general balance will worsen by 0.4 percentage points, from -1.3% of GDP in 2023 to -1.7% in 2024.

Luxembourg’s unemployment rate rose significantly in 2023 – a significant impact of the closure of many construction companies – which is now confirmed at 5.6% and below the Eurozone average of 6.5%, a historic low.

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