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PwC/AGEFI Monthly Barometer - July-August 2022

The Monthly PwC Business Barometer

Economic Confidence indicator in collaboration with AGEFI Luxembourg

PwC/AGEFI Monthly Barometer - June 2022
Economic uncertainty reduces confidence further

Key Takeaways

  • The PwC Business Barometer decreased by 5 points during the past month, reaching a level of 3 by the end of June.
  • Expected volatility in bond and equity markets could shake up the financial industry of the Grand Duchy. 
  • Business growth in the eurozone stalls, with the manufacturing sector facing a significant drop in demand.
  • As inflation remains elevated, central banks are enforcing contractionary monetary policies in order to bring prices back under control.
In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

July/August 2022

The PwC economic barometer decreased by 5 points during June to reach 3 at the end of the month. Persistent inflation and mounting concerns about economic growth are pushing confidence lower.

As global inflation is approaching levels not observed in the past 40 years, Luxembourg seems to weather the storm better than some other European countries. To put this into perspective, even though some European countries are facing an inflation of more than 10%, the figure for Luxembourg stood at 6.8% for May, a rate among the lowest in EU member states. Nevertheless, this price increase remains significant for the economy of the Grand Duchy and is emphasised by a sharp rise in fuel/energy prices and demand for leisure activities such as restaurants, tours, accommodation and air travel. Regarding the financial sector, a mixed picture is being observed; on one hand, the value added of the sector has plummeted during Q1 2022 as a result of economic uncertainty and a subsequent decline in capital markets. On the other hand, employment in management companies has increased by 2.5% during the first quarter of 2022, or 9% YoY. In any case, as investors evaluate and rebalance their portfolios taking into account the current risks and policy actions affecting the global economy, further market volatility that will inevitably affect the financial sector in Luxembourg is expected . 

Business growth in the Eurozone remained modest during June, falling to the lowest level since March 2021 as a result of a drop in manufacturing output and a sluggish growth in the services industry. Demand from both Eurozone and external markets recorded a sharp decline, with new factory orders diminishing at a rate last seen in May 2020, during the height of Covid-19 lockdowns. Despite that, work accumulation continued in June, leading to an increase in staffing levels. Looking ahead, businesses remain cautious as the decrease in demand is signalling a likely downturn in economic activity for the coming months. Globally households are faced with soaring inflation and are therefore forced to reduce their spending, especially on non-essential consumer goods and services. Businesses reported more cost increases during June, although at a slower rate relative to previous months.

June witnessed several moves from a global scale of central banks in an effort to curb the accelerating inflation. The US Federal Reserved raised its main policy rate by 75 basis points – the largest rate hike in almost 30 years – followed by a rate hike from the Swiss National Bank for the first time in 15 years. In addition, the ECB has also announced a 25 basis point increase in July as inflation in the euro area has surpassed 8%, followed by more rate hikes during autumn. However, these events, have caused a significant wake in both equity and bond markets as both experienced high volatility during June.

As inflation remains in the spotlight, ING recently published a long term inflation outlook. More precisely, the bank has identified 3 key drivers of inflation in the long term; the first one is decarbonisation and is expected to support inflation through elevated prices for fossil fuels or commodities, either because of an increased demand for these products, or through policy actions aiming at limiting their use (such as carbon taxes). The second is deglobalisation and is related to the re-shoring of businesses in order to achieve greater security and supply chain independence, a feat that will come at the price of higher labour costs. Finally, the projected population growth will also lead to a rise in prices, given that demand for food, housing and other goods or services will increase.  

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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