PwC/AGEFI Monthly Barometer - December 2020

In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

December 2020

Our barometer dropped 15 points this month, reaching -19 according to our newly revised methodology. This decrease comes as little surprise, given the new lockdown restrictions introduced this month - which were foreseeable from mid-November given the rising number of COVID-19 cases. The impact of these new restrictions was clearly visible on many of the sentiment indicators on which this barometer is based.

Although economic activity faced limited restrictions in Luxembourg for most of November, overall economic sentiment worsened as the surging number of confirmed cases and related deaths led to new restrictions. Looking forward, the three-week closure of restaurants and cafés will have a negative effect on GDP for Q4, although this impact is likely to be relatively minor compared to the one observed during the first COVID-19 wave. The Luxembourgish manufacturing sector remains resilient, with output steadily growing on a V-shaped trajectory since April. Confidence was a bit lower for November, but the outlook remains positive for the coming months. Consumption remained strong throughout Q3 2020, bouncing back from the lows recorded in Q2 and fuelled by the catch-up effect. However, sales were not high enough to compensate for the accrued losses, which stand at about 3-4% cumulatively over the past year. In the financial sector, vaccine announcements will have a positive impact on the key sectors’ performance in Q4. However, whilst several monetary and fiscal support measures guaranteed the provision of low interest rate loans over the first 3 quarters of 2020, rising uncertainties surrounding Q4 stand to revert this trend, due to rising default risks. Banks are therefore gearing up to apply stricter criteria when granting loans – particularly those with a long-term duration. Finally, inflation is expected to rise in the first months of 2021, given the introduction of a carbon tax that will increase the price of petrol and diesel in the country.

In the Eurozone, GDP grew by approximately 13% in Q3 2020, bouncing back from the negative Q2 figure. However, uncertainty surrounding the rising coronavirus infections across Europe has led to a less optimistic outlook for the end of the year. Growth is expected to slow down in Q4, given that many countries are currently in lockdown or have implemented measures that will restrict their economic activity. Much of this downturn was a result of decreasing demand in the services sector, with activity falling to its lowest level since May. Overall employment in Europe also fell slightly in November, due to reduced demand and a relatively low level of orders. Manufacturing fared a little better, although companies reported rising input costs for raw materials, shortages and increased delivery times. On the upside, the fact that Europe is preparing large scale vaccinations for its population from early next year brings an optimistic outlook for the continent, with economic activity expected to surge in 2021.

In November, a strong rally in major stock markets took place, fuelled by positive news of vaccine development. Specifically, the Dow Jones rallied around 11%, the FTSE 12% and the EuroStoxx50 15%. These sharp upward movements signal increased investor confidence regarding the state of the economy for the coming months and that the vaccines will be effective and quickly lead to the reopening of economies globally. However, whether or not this positive sentiment will be reflected in the real economy remains to be seen in 2021. 

  • The monthly PwC barometer, in collaboration with AGEFI Luxembourg, is an economic confidence indicator which is intended to be a simple and pragmatic tool aimed at capturing the economic atmosphere of the Grand Duchy each month.
  • The indicator is based on a number of sentiment indices published monthly by Eurostat and Sentix, which are based on surveys (businesses, consumers or investors/analysts).
  • The indicators used are: consumer confidence (EA for euro area and LUX for Luxembourg), industrial confidence (EA and LUX), construction confidence (EA and LUX), financial confidence (EA), retail confidence (EA), services confidence (EA) and the Sentix Index (EA).

Contact us

Dariush Yazdani

Dariush Yazdani

Market Research Centre Partner, PwC Luxembourg

Tel: +352 49 48 48 2191

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