Luxembourg economy to grow by up to 5%

Luxembourg’s economy is set to grow by up to 5 per cent this year, gathering pace from 2016 as stock markets rise and people borrow and spend more, it was forecast today.

Luxembourg’s statistics institution, Statec, predicted a 5 per cent increase in GDP for 2017 and said it expected growth to continue into next year.

The Grand Duchy’s economy grew by 4 per cent last year.

A Statec spokesperson said: “The financial sector should benefit from a more favourable climate, underpinned in particular by the recovery in stock markets and the continuation of an encouraging trend of loans granted to households and businesses.”

Statec said trends in output indicators (industry and construction) and turnover (non-financial services) were “a little disappointing” in the first months of 2017.

“However,” it said, “corporate and household confidence is at historically high levels and, coupled with the strengthening of European economic momentum, should stimulate activity.

“In various quarters, there is a groundswell of support for strengthening private consumption and investment – two factors that have only had a modest impact on growth in recent years.”

Surge in average wages

Statec said the euro zone was experiencing a moderate and consistent cycle of expansion and that data published in recent economic surveys pointed towards the “possibility of a further strengthening of activity across the euro zone this year”.

It expects the inflation rate in Luxembourg to be 1.8% in 2017 and 1.7% in 2018.

“In Luxembourg and across the euro zone,” its spokesperson added, “the inflation rate has recovered considerably, reaching levels last witnessed in 2013.

“At the beginning of the year, it was sustained by rising oil prices, as well as food prices and, additionally, in Luxembourg, by the effects of the wage indexation, which came into force in January. Apart from these factors, the underlying pressures are weak.”

The statistics institution also highlighted that average wage costs in Luxembourg were expected to “increase significantly” this year, mainly due to indexation and the wage agreement in the public sector, as well as the readjustment of the minimum wage.

“Luxembourg’s public finances are in very good shape and fully compliant with all European criteria,” its spokesperson said.

“Moreover, for the sixth consecutive year, they are in surplus. The latter – at 850 million euros, or 1.6% of GDP in 2016 – should decrease in 2017. The reasons for this are the tax incentives relating to tax reform and the new losses in terms of VAT on e-commerce.”