After registering a strong 6.9% in 2021, Luxembourg’s real GDP growth is expected to slow down to 2.6% in 2022, despite a robust first quarter (1.2% quarter-on-quarter), mainly driven by private consumption and net exports. Although consumers’ sentiment has weakened and high inflation is forecast to persist, private consumption is expected to remain resilient and to grow over the forecast horizon, supported by a still dynamic labour market, savings accumulated during the pandemic and fiscal support schemes to households and firms put in place in the context of high energy prices. The uncertain external environment and the tightening of financial conditions are set to weigh on investment growth. In particular, investments in equipment and construction are expected to decelerate. The contribution of the financial sector to growth is projected to decrease in 2022, mainly on the back of a deterioration in the stock market environment.
Last update : Summer 2022 Economic Forecast (14/07/2022)
|GDP growth (%, yoy)||-1,8||6,9||2,6||2,1|
|Inflation (%, yoy)||0,0||3,5||8,5||3,0|
Economic expansion is projected to continue in 2023, although at a slower pace mainly due to the moderate growth of domestic demand, most notably private consumption. Overall, real GDP is expected to grow by 2.1% in 2023. Downside risks to the economic outlook are linked to the geopolitical tensions, with key risks stemming from higher financial market volatility, increasing commodity prices and uncertain global demand.
Headline inflation increased strongly in April and May (9.0% and 9.1% y-o-y respectively). All the HICP components registered an increase in the last months with energy contributing the most to the overall rise. The prices of food and non-energy industrial goods rose significantly due to soaring commodity prices and supply chain disruptions. The automatic wage indexations in October 2021 and April 2022 inflated labour costs, which notably impacted prices of services, resulting also in increased core inflation. Commodity prices, especially energy and food are expected to remain elevated this year. Consequently, the HICP is forecast to peak at 8.5% in 2022 before decreasing to 3% in 2023 due to the assumed deceleration of energy prices. While the next wage indexation has been postponed to April 2023, upside risks for inflation stem from continued increase of energy and food prices that could trigger additional wage indexations.