In a year filled with extraordinary macroeconomic and geopolitical shocks, CEOs in Luxembourg are unsurprisingly showing signs of concern and pessimism towards the future. With GDP forecast to grow by a mere 1.5% in 2023 (down from a strong 6.9% in 2021), the dispirited mood is understandable. Structural imbalances in the Luxembourgish economy, such as the high housing costs and the difficulties in attracting and retaining talent at all levels, are starting to weigh heavily on CEOs’ minds.
Nonetheless, the Luxembourgish economy has proven to be resilient in the face of cascading shocks, and CEOs in the Grand Duchy do not intend to passively watch events unfold. By upskilling their workforce, automating processes and systems, deploying advanced technologies and enhancing their resilience to cyber threats, Luxembourg CEOs are bracing for the coming years by investing in priority areas and, given Luxembourg’s status as a pioneer in sustainable finance, stand in a strong position to decarbonise their activities and embark on a green transition.
Luxembourg CEOs are more pessimistic about global GDP growth & less confident in their companies’ growth outlook than global peers
Luxembourg CEOs view cyber risks as a more pressing threat than global peers
7/10 Luxembourg CEOs intend to invest in upskilling, automation and advanced technology in the near-term
Dashed optimism
Whereas CEOs in Luxembourg and across the world showed a strong enthusiasm for growth prospects in the coming years, this optimism has been dashed, as 78% of Luxembourg CEOs and 74% of global CEOs expect global GDP to decline in the coming twelve months. However, Luxembourg CEOs remain less pessimistic than many of their peers across Europe and North America when it comes to local GDP growth. For instance, whereas 60% of CEOs in Luxembourg expect the Grand Duchy’s GDP to decline in the coming year, the figure rises to 71% among CEOs in Western Europe, 84% among CEOs in the United Kingdom and 73% among CEOs in the United States.
Do you believe economic growth (GDP) will change, if at all, over the next 12 months in the global economy?
Macroeconomic instability as the predominant threat, but cyber risks persist
Following the Russian invasion of Ukraine in February 2022, the mild inflation Europe was facing shot up dramatically, as oil and gas prices rose across the board, and long-established supply chains were dealt a series of blows. The European Central Bank raised interest rates for the first time since 2011. In the Euro area, inflation reached 9.2% in December 2022, down from 10.1% in November as per Eurostat. While inflation in Luxembourg remained below the Euro area average, it remains substantially higher than in 2021, reaching 6.2% in December 2022 as per Eurostat.
Unsurprisingly, and in tandem with their global counterparts, Luxembourg CEOs highlighted inflation and macroeconomic volatility as the two key threats they will face in the next year, as well as in the next 5 years. At the same time, cyber threats still loom large on CEOs’ minds, with 28% and 32% of Luxembourg CEOs considering cyber risks as a key threat for the next year and the next 5 years respectively - above the respective global averages.
How exposed do you believe your company will be to the following key threats in the next 12 months/in the next 5 years?
Luxembourg-specific challenges center on costs, talent and regulatory issues
CEOs face a number of challenges directly related to the structural imbalances in the Luxembourgish economy, such as the increasingly high cost of housing and the difficulties in attracting and retaining talented professionals, both entry-level and senior. For instance, 93% consider people-related issue – such as attracting and retaining talent – as a moderate or significant challenge. Labour & skills shortages are viewed as the top threat to Luxembourg CEOs outside the financial sector, with 3 out of every 4 non-FS respondents expecting these shortages to impact their long-term profitability.
What are the challenges your organisation faces in its Luxembourg operation(s)?
To what extent do you believe the following will impact profitability in the industry over the next ten years?
Source: PwC 26th Annual Global CEO Survey; PwC Global AWM & ESG Market Research Centre.
Note: Showing the percentage of ‘to a large extent’ and ‘to a very large extent’ responses.
Investing in resilience
Upskilling the workforce continues to be a priority for Luxembourg CEOs, with 73% planning investments in this area in the coming year – a promising figure given that 42% had identified upskilling as a priority in the 2021 edition. Automating processes and systems, and deploying advanced technology come next, with 72% and 67% of Luxembourg CEOs making plans in this regard for the coming year, respectively. In addition, to mitigate against exposure to geopolitical risks, 55% of CEOs in the financial sector and 50% of CEOs in other sectors are planning on increasing investments in cybersecurity and data privacy.
Given that CEOs in both the financial and non-financial sectors are concerned about labour and skills shortages in Luxembourg, it is unsurprising to see that they are prioritising investments in upskilling their workforce, automating processes and systems, and deploying advanced technology.
Which of the following investments, if any, is your company making in the next 12 months?
Which of the following actions, if any, is your company considering to mitigate against exposure to geopolitical conflict in the next 12 months?
Luxembourg weathers the storm…
In the medium-term, Luxembourg’s economy is unlikely to face significant upheaval, as 9 out of 10 CEOs believe their operations will continue to be in the Grand Duchy in 5 years’ time. A little over half of them believe that they will remain without having to change their business model. This confidence is a testament to the Grand Duchy’s well-known strengths – such as its strategic geographic location, its robust regulatory environment, and its political, economic and social stability.
Please rate the probability that your operations will still be in Luxembourg in 5 years’ time.
… but for how long?
While the Luxembourgish economy may not be facing any significant threats in the coming few years, the same cannot be said for the long-term. Only 46% of CEOs from the financial sector believe that their business will continue to be economically viable in the Grand Duchy for more than ten years – compared to over 70% of their peers in Ireland, the United Kingdom and the United States.
Given the reliance of Luxembourg’s economy - and subsequently, the reliance of the country’s public finances - on its outsized financial centre, policymakers should not disregard this key finding of our survey To ensure the continued viability of the financial centre as a growth engine supporting the transformation of the Luxembourgish economy, both structural issues and hurdles to effective collaboration need to be overcome.
If your company continues running on its current path, for how long do you think your business will be economically viable? (Financial sector respondents in Luxembourg, Ireland, the UK, and the US)
Contact us
Laurent Probst
Advisory Partner, Industry & Public Sector, PwC Luxembourg
Tel: + 352 49 48 48 2199
Olivier Carré
Deputy Managing Partner, Technology & Transformation Leader, PwC Luxembourg
Tel: +352 49 48 48 4174
