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PwC/AGEFI Monthly Barometer - January 2022

The Monthly PwC Business Barometer

Economic Confidence indicator in collaboration with AGEFI Luxembourg

PwC/AGEFI Monthly Barometer - January 2022

Key Takeaways

  • The PwC Business Barometer recorded a six-point decrease during the past month, reaching 44 as of end-December.
  • Luxembourgish GDP growth estimates hint at an uncertain outlook for 2022, despite favourable 2021 results.
  • Manufacturing in the euro area outperformed the services sector as a result of the increase in Covid-19 infections. 
  • Expectations of central bank policies will drive the stock markets for the coming weeks. 
In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

January 2022

Amid rising COVID-19 infections and slowing economic growth, the month of December saw PwC Business Barometer record its second consecutive monthly decrease - falling six points to reach 44.

STATEC estimates that GDP growth figures for Luxembourg will stand at 7% for 2021, confirming the materialisation of a V-shaped recovery. That being said, the recent surge in COVID-19 infections, paired with mounting uncertainty regarding new variants, paint a less optimistic picture for the year ahead - with economists forecasting a 3.5% GDP growth for 2022 under a base-case scenario. To adjust for this high level of uncertainty, STATEC has published 2 additional forecast scenarios. The low-case scenario assumes that the COVID-19 variants will continue to spread uncontrollably, increasing pressure on the health system, reducing demand and bringing about new restrictions. The high-case scenario, on the other hand, would see the rapid vaccine rollout bolster consumer and business confidence - with the former using their accumulated savings to boost demand and consumption. Across these scenarios, 2022 GDP growth is expected to range from as low as 1.8% to as high as 5.2%, with the difference between the two figures (3.4%) attesting to the significant level of uncertainty. Uncertainties and ambiguities notwithstanding, however, 2022 is poised to represent another step down the road to recovery in the Grand Duchy, with unemployment expected to fall to 5%, while the  fiscal surplus is expected to amount to 1.4% at year-end as a result of the fast recovery in public finances in 2021.

As was the case in Luxembourg, December saw the resurgence of COVID-19 infections across the majority of the euro area. This primarily affected the services sector, which was outperformed by the manufacturing sector in terms of output growth for the first time in three months (although the latter continued to be impacted by supply constraints). The emergence of the Omicron variant, and the subsequent increase in cases, also saw demand across the eurozone increase at the slowest rate in 9 months. An increase in unfinished work was also observed for the 10th consecutive month, despite an above-average employment growth in the region. Finally, businesses were slightly more confident compared to the previous month as the supply side gradually overcomes the problems that were prominent during most of 2021.

Stock markets across the world got off to a rocky start in 2022, with most markets recording a decline in the first trading days of the year. These movements largely reflect the market’s reaction to the expected policies of central banks (particularly potential interest rate hikes), as well as a sooner-than-expected withdrawal of pandemic support measures. Increasing inflation and stronger than expected growth have cornered central bankers, making an interest hike necessary in order to avoid extensive inflationary pressures. Goldman Sachs recently claimed that the Fed could increase its rate up to 4 times during 2022, based on strong labour market performance, high inflation and a more aggressive stance observed in December. Expectations of interest rate hikes are already evident in US Treasury bonds, since both the 10- and 30-year yields have recorded a steep increase since the start of the year. Consequently, the coming weeks will be important for stock markets in the short- to medium-term, as any announcement could create increased volatility. 

About the PwC Business Barometer

  • The monthly PwC barometer, in collaboration with AGEFI Luxembourg, is an economic confidence indicator that 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

Partner, Global AWM Market Research Centre Leader, PwC Luxembourg

Tel: +352 49 48 48 2191

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