PwC/AGEFI Monthly Barometer - February 2021

In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

February 2021

Most of the observed sentiment indicators recorded a slight decrease this month, leading to a three-point drop in our barometer; which now stands at a relatively neutral level of -6. This sentiment can largely be attributed to household and business uncertainties regarding the vaccine rollout and overall economy - uncertainties which will likely persist over the coming weeks.

A number of European countries have tightened restrictions in response to the recent spike in COVID-19 infections, which has heavily impacted service and retail activities - particularly in the hospitality sector. In Luxembourg, restaurants and cafes are to remain closed until the 21st of February at the earliest. On the other hand, we have observed a further improvement in confidence among business owners in the manufacturing and construction sectors.

Overall unemployment levels in Luxembourg have dropped from the levels recorded in May, although the average unemployment duration has increased as a result of the decrease in recruitment activities. The country’s financial sector remains resilient, however, with bank profitability remaining high and employment growing at a modest 1.4%.

The government debt/GDP ratio in the euro area stood at 97.3% at the end of Q3 2020, up from 85.8% in 2019. This is a result of the considerable increase in government debt issuance (+9.27% YoY), as well as the -4.3% YoY plunge in GDP. In Q4 2020, the seasonally adjusted unemployment figure for the euro area stood at 8.3%, roughly 1% higher than the same period in 2019. Eurozone business activity fell in January 2021 due to the prolonged restrictions in member countries and a rise in COVID-19 infections. In addition, the IHS Markit Eurozone Composite PMI fell from 49.1 in December to 47.5 in January, indicating a third consecutive monthly decline in business activity. Nevertheless, the deployment of vaccines and the decreased pressure on medical facilities have contributed to increased confidence levels heading into 2021.

Global markets continue on the upward trajectory that began with the launch of the vaccine. For reference, the MSCI World Index (which captures large and mid cap representation across 23 Developed Markets countries) rose 4.24% in December, while the MSCI Emerging Markets recorded a 7.35% increase during the same period. Both these indices, along with the S&P500 and the DAX are currently at record highs. While this indicates strong investor confidence in the economic recovery, the disconnect between capital markets and the real economy has concerned some investors, potentially indicating the presence of a bubble in the markets.