PwC/AGEFI Monthly Barometer - July 2026

In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

July 2026

The PwC Business Barometer rose to -15 in July from -17, indicating a modest improvement in business sentiment, although confidence remains subdued.

Luxembourg’s inflationary pressures appear to be easing. According to STATEC, headline inflation is expected to average 2.2% in 2026, down from the 3.1% recorded in May when energy prices surged. To further cushion households and businesses, the government introduced the “Resilienzpak 2026” under the Tripartite Agreement, with measures expected to limit energy price increases to 2.3% in 2026, compared with an estimated 6.6% without intervention. Beyond the near-term outlook, the Grand Duchy’s competitiveness has strengthened, climbing to 14th place in the IMD World Competitiveness Ranking, driven by a marked improvement in economic performance. Nevertheless, long-term challenges continue to build. The IMF projects public debt to increase from 26.5% of GDP in 2025 to 39.2% in 2031, while noting that Luxembourg’s strong fundamentals continue to cushion the economy against external shocks. However, growth remains subdued and uneven, accompanied by a softening labour market and rising uncertainty. It also noted that the Grand Duchy’s economy has yet to regain its past dynamism, with growth lagging its peers despite strong fundamentals, reinforcing the need to strengthen productivity and private-sector-led growth.

The broader Eurozone economy is showing tentative signs of improvement, although the recovery remains uneven and vulnerable to external shocks. The Composite PMI edged up to 49.5 in June, bringing the bloc closer to expansion territory after several months of contraction. Annual inflation eased to 2.8%, below economists’ expectations of 3.0%, although energy remained the principal driver, rising by 8.7% YoY. Against this backdrop, the ECB raised its three key interest rates by 25bps, becoming the first G7 central bank to tighten policy in response to higher energy prices triggered by the Middle East conflict. Financial markets also reflected heightened inflation concerns, with Germany’s two-year government bond yield rising above 2.6% as of early July as investors repriced inflation and monetary policy risks following renewed US-Iran tensions. While recent data suggest that downside pressure may be easing, the European Stability Mechanism (ESM) warned that a renewed escalation in the Middle East, coupled with a sharp sell-off in US financial markets, could tip the euro area into recession and drive inflation close to 5%. 

Globally, fears of persistent inflation continued to shape investor sentiment. The Fed and BoE kept interest rates unchanged, while BoJ raised its benchmark interest rate by 25bps to 1%, its highest level in three decades, reflecting policymakers’ continued cautious over the inflation outlook. Although Brent crude oil remains well below the peaks above USD 120 reached earlier in the conflict, its renewed climb towards the USD 80 per barrel mark following US strikes on Iran revived concerns that disinflation process could stall and inflationary pressures could re-emerge. Against this backdrop, investors further pared back expectations of near-term easing, weighing on risk appetite. US technology stocks, led by semiconductor companies, retreated after months of strong gains, while gold extended its decline towards USD 4,000 per ounce. Overall, recent developments show the global economy is stabilising, although the recovery remains vulnerable to geopolitical risks and persistent inflationary pressures.