PwC/AGEFI Monthly Barometer - January 2026

In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

January 2026

The PwC Business Barometer worsened to -1 in December, down from +1 in November. Confidence sets back to negative territory, challenged by sustained uncertainty.

At year-end, business confidence in Luxembourg remained slightly negative. The Grand Duchy continued to contend with above-target inflation and subdued business sentiment, despite solid economic and labour market performance. According to STATEC, GDP expanded by 1.1% QoQ and 2.7% YoY in the third quarter, marking a fourth consecutive quarter of growth, levels not seen since 2019. This momentum was driven by robust investment growth (+12% QoQ) and a modest recovery in household consumption (+1.2% QoQ). Growth, however, remained uneven across sectors. December’s expansion was led primarily by financial and insurance activities, while construction lagged amid weak output from property developers. The labour market is also set to perform strongly, with STATEC projecting employment growth to accelerate from 1.1% in 2025 to 1.6% in 2026. Despite these favourable headline indicators, structural pressures continue to weigh on consumer and business confidence. Inflation remains sticky, with prices rising by 3.1% in December, well above the EU’s 2% target. Moreover, as highlighted by the Luxembourg Chamber of Commerce at its year-end press conference, business confidence has yet to recover to pre-pandemic levels. Persistent challenges, including labour shortages, regulatory burdens, and high labour costs, are constraining growth. Looking ahead, STATEC expects an automatic wage indexation adjustment in the third quarter of 2026, which would further raise costs for businesses.

In the Euro Area, political uncertainty continues to restrain business investment despite a relatively supportive macroeconomic backdrop. Inflation eased to 2% in December, while the ECB left its key interest rates unchanged. Nevertheless, business confidence deteriorated to a seven-month low, as weakening sentiment in the services sector more than offset improved optimism in manufacturing. The Euro Area Composite PMI dropped to 51.9 in December, indicating continued but moderating growth momentum. Political factors further weighed on sentiment, notably the EU’s approval to proceed with the signing of the Mercosur trade agreement, scheduled for January 17, which has intensified farmer protests and triggered renewed resistance among several Member States.

Global business confidence is being shaped by opposing forces. On the supportive side, the Fed’s 25bps rate cut in December has underpinned cautious optimism about the US economic outlook. However, this sentiment has been increasingly overshadowed by rising geopolitical risks in the opening weeks of 2026. The recent US military operation in Venezuela, coupled with President Trump’s expressed interest in the country’s oil reserves, has heightened uncertainty over future oil price dynamics. Further concerns stem from President Trump’s threats of intervention in Iran in support of anti-regime protesters, as well as renewed territorial claims over Greenland, raising fears of both the escalation of existing conflicts and the emergence of new ones this year. Uncertainty is further compounded by domestic US developments, notably the criminal investigation involving Federal Reserve Chair Jerome Powell in connection with the renovation of the central bank’s headquarters.