November 2013 - Morale sinks in Luxembourg despite buoyant outlook in Europe
PwC’s business barometer registered a slight decline in October, reaching +26 points. Although investor sentiment continued to rise in Europe, morale sank in Luxembourg, which explains the 4-point drop in our index this month.
Employment and purchasing power trends are partly to blame for this: Luxembourg’s unemployment rate once again reached 7% at the end of September, whereas purchasing power stood lower than in 2009 as a result of faster growth in inflation than in the median income. Results in the banking sector were positive, but the interest margins and balance sheets of Luxembourg banks registered declines. Nevertheless, Luxembourg’s GDP for the second quarter of 2013 was up by 2.4% in relation to the same quarter of the previous year, with a remarkable increase in the Information and Communication Technology sector (+8.2%).
In contrast, morale remained strong in Europe, with the IMF raising its growth forecast for the region. This improved business climate should benefit the larger economies, including that of Spain which finally registered growth for the third quarter of 2013, putting an end to nine consecutive quarters of recession in the country. More good news came in the area of public finances, with government deficit in the euro area decreasing from 4.2% of GDP in 2011 to 3.7% in 2012. However, the area’s banking sector remains fragile and the euro’s strength (currently at a two-year high) could hamper recovery in Europe’s exports.
PwC Luxembourg's Monthly Barometer was created in cooperation with AGEFI Luxembourg as a simple and practical tool designed to provide a monthly snapshot of the economic climate in Luxembourg.
The barometer combines the results of Statec's short-term indicator on industrial output in Luxembourg with data published by ZEW, a German research institute, on the economic perceptions of analysts and investors regarding the euro area.
The graph below shows trends in the barometer over the past six years.