PwC/AGEFI Monthly Barometer - April 2025

In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

April 2025

In March 2025, the PwC Business Barometer fell to -7, down from -5 in February. The decline reflects an uncertain environment, worsened by a trade war triggered by the Trump administration.

In Luxembourg, economic uncertainty is weighing on the general health of the economy. Indeed, despite not being significantly exposed to international trade of goods, the country is being impacted by indirect effects stemming from worsened global trade tensions. STATEC reports that only 3% of Luxembourg's exported goods are destined for the U.S., mainly metals and textile products. Nevertheless, the economy could feel the pain of uncertainty on a broader scale, considering its interconnections within the European supply chain. Data from the Luxembourg Central Bank show a decrease in several confidence indicators. The consumer confidence indicator declined for the third consecutive month to -13, down from -11.4 in February. A similar trend is seen in the industrial sector. However, there is good news from the financial sector, which was one of the main contributors to the 1.4% expansion in Luxembourg's real GDP in Q4 2024. Positive developments are also emerging in the real estate sector. According to the latest Bank Lending Survey, financial institutions report an increase in mortgage applications. Notably, the intention to purchase residential properties has been steadily increasing since mid-2024, leading to a 37% YoY growth in residential property lending during Q4 2024 – a trend confirmed in the first months of 2025. STATEC also reported positive news regarding inflation and unemployment. Inflation slipped slightly to 1.3% in March, after a rebound 1.9% in January from the 1.0% recorded in December. Unemployment settled at 5.9%. The latest inflation dynamics are likely to trigger a wage indexation in May, which is expected to be confirmed on April 29th.

The Eurozone economy registered a third successive monthly increase in business activity in March, with the Composite PMI remaining in expansion territory at 50.9. Despite some easing of input cost pressures, conditions remain uncertain and heavily dependent on how Europe responds to the recent tariffs. Indeed, the expansion was weaker than the long-run trend of 52.4, while new export orders declined, as did the positive sentiment among private sector companies. Nevertheless, aside from restrained inflationary pressures, employment numbers were positive across the Euro Area, with private sector workforce statistics rising for the first time since July 2024. On a country-specific basis, France remained at the bottom of the rankings in terms of economic activity, posting a seventh successive monthly contraction, influenced by a fragmented political situation recently worsened by Marine Le Pen’s conviction for embezzlement. Ireland and Spain were the best performers, with growth improving to 4- and 2-month highs, respectively. Germany saw its broadest business activity increase in 10 months, likely driven by indirect effects from the debt-financed EUR 500bn infrastructure fund agreement.

On a global scale, President Trump’s trade policies have engulfed the world economy and drastically increased uncertainty. On April 2nd  – proclaimed “Liberation Day” – the U.S. President massively escalated the trade war, announcing reciprocal tariffs of at least 10% on all countries. The following week was marked by extreme market volatility. Major U.S. stock indices fell into bear market territory, while gold prices surged to a record high of USD 3,167 per ounce. Market panic intensified after China imposed retaliatory tariffs on U.S. goods, prompting the Trump administration to respond with additional tariffs on Chinese imports, bringing the total tariff rate to 145% as of April 10th. Following the worst week for U.S. stock markets since the COVID-19 pandemic, President Trump suspended the measures for 90 days for all countries – except China – introducing a lower, temporary 10% tariff on countries that did not retaliate. Although the March inflation reading declined to 2.4% from 2.8% in February – an encouraging sign that the Fed’s measures are contributing to disinflation – the short-term outlook remains uncertain. Given the inflationary nature of tariffs, there is a risk that the disinflationary trend may stall in the coming months, or even reverse. Such a development would significantly complicate the Fed’s efforts to maintain price stability moving forward.