PwC Luxembourg Monthly Barometer

In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

March 2018

Slight cold blow on our barometer this month with a drop of 9 points after a peak in February.
In Luxembourg, trust is eroding in spite of the rather positive macroeconomic indicators. This decline is probably due to the global stock markets’ correction in early February (although they have rebounded since then). The national statistical institute Statec forecasts an average 4% growth from 2018 to 2020, well above that of the euro zone which should remain just above 2% over this period. Luxembourg's growth would then remain at around 3% until 2022, despite monetary tightening and rising rates in the medium term. This growth would reduce unemployment to 5% and be accompanied by relatively low inflation at around 1.4% in 2018 and 1.8% in 2019.
The fear of faster rate hikes in the US – potentially triggered by an acceleration of inflation due to recently appreciating wages - led to sharp corrections in stock markets across the Atlantic; but also in Europe, where the Euro Stoxx slumped 9% in 10 days in the beginning of February. However, the indices took off again in the second half of the month; thus making up around half of the correction. Despite the rise in world trade, the strong euro effect is starting to be felt on European exports. The rise in new orders slowed down in February and translated into a slight drop in Markit's manufacturing PMI at 58.6 in March, down from 59.6 in January. This slight slow down in orders could continue in the coming months but will not immediately weigh on production as order books are full and production arrears continue to increase. Like the IMF last month, the European Commission has revised its growth forecasts upwards for the euro area and now expects a 2.3% growth for 2018 against 2.1% previously. Despite the strong euro, the ECB’s durably accommodative policy - no rate hike expected before the end of 2019 - and low inflation will continue to favor exports, supported by the recovery in world trade.

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.

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