PwC/AGEFI Monthly Barometer - February 2024

In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

February 2024

In January, the economic barometer rose for the fourth consecutive month, reaching -2, the highest level since April 2023. Despite increased confidence, the Grand Duchy’s economic outlook remains uncertain.

The industrial output in Luxembourg experienced a significant downturn of 5.9% over the past year, marking one of the poorest performances within the euro area. Various factors contributed to this decline, notably decreased energy consumption leading to reduced output in energy production and distribution, alongside challenges in machinery, equipment, and metal product manufacturing. Looking ahead to 2024, uncertainty persists despite signs of stabilization in industrial output since last summer. The industrial confidence indicator remained volatile in late 2023 and early 2024, further complicated by supply chain disruptions stemming from instability in the Red Sea. On a positive note, although the sector experienced a general slowdown, employment within the industry saw a modest increase of 0.6% in the first three quarters of 2023, closely aligned with the euro area's 1.0% growth. However, overall employment growth in Luxembourg saw a gradual decline in the third quarter of last year, with a mere 0.2% increase compared to Q2 and a 1.8% YoY growth. Bankruptcies emerged as a key factor behind this slowdown, with job losses associated with bankruptcies soaring by almost 40%, despite a 7% decrease in their number compared to 2022. This trend was particularly evident in the construction sector, where bankruptcies caused nearly 1,200 job losses, according to STATEC.

In the euro area, the Composite PMI index reached a 6-months high of 47.9 in January. Although it still remains below the critical threshold of 50, indicating a decline in business activity, it suggests that output is expected to continue to fall albeit less sharply. Some factors suggest a long-term recovery of industrial output in Europe. The decline in commodity prices that started in mid-2022 is beginning to influence manufacturing product prices, helping reduce inflation, which may eventually stimulate consumer demand. Although consumer sentiment remains relatively low in both Luxembourg and the euro area, it has been on the rise since November. Other factors are less encouraging, such as the renewed pressure on supply chains.

Globally, falling inflation and steady growth signal a smoother economic trajectory. In January, the IMF raised its global growth forecast to 3.1% for 2024 and 3.2% for 2025, citing improved resilience in the US and major emerging markets, along with fiscal support in China. Despite certain factors like higher interest rates and sluggish productivity keeping growth below historical averages, continued disinflation and stable growth are mitigating the risk of a severe downturn.