PwC/AGEFI Monthly Barometer - March 2025

In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

March 2025

In February 2025, the PwC Business Barometer stood at -5, slightly improving from -6 in January 2025. Despite remaining in negative territory, the indicator’s growth reflects a renewed sense of confidence among some businesses in Luxembourg.

Business confidence in Luxembourg is showing signs of recovery, although it still remains in negative territory. According to STATEC, recent months have seen a decrease in the percentage of companies reporting financial constraints, along with an improved employment outlook. Following a sharp decline in Q3 2024, confidence in the service sector has risen for the fourth consecutive month, reaching its highest level in two and a half years. A similar trend is evident in the retail sector, which experienced a significant drop in confidence in Q3 2024 but has since rebounded. Meanwhile, confidence in the industrial sector has seen marginal improvement but remains volatile, with ongoing monthly fluctuations. In contrast, confidence in the construction sector has fallen to levels not seen since the 2009 financial crisis, with approximately 60% of firms reporting insufficient demand – up significantly from just 10% at the beginning of 2022. STATEC reports that 40% of job losses due to bankruptcies last year occurred in the construction industry. However, job losses in the construction sector are showing signs of stabilisation, improving from -1.6% in early 2024 to -0.6% in Q4. On a broader scale, Luxembourg’s labour market presents a mixed outlook. As of January 2025, the unemployment rate has decreased to 5.8%. Employers reported 3,426 new job vacancies, marking a 14.6% increase from December, indicating sustained demand for hiring. However, the number of job seekers rose by 6.1% year-on-year in January, highlighting the ongoing challenges many individuals face in finding employment. Overall, the labour market continues to adapt to changing economic conditions, presenting both challenges and opportunities for workers in the coming months.

The Euro Area economy remained in expansion territory in February, with the Eurozone Composite PMI holding steady at 50.2. However, underlying conditions remain fragile, as weak demand and contracting business volumes continue to dampen growth, leading to deteriorating confidence and a seventh consecutive month of declining employment. While inflation eased to 2.4%, businesses still face significant cost pressures, with input prices rising at the fastest pace in nearly two years. However, as overall disinflation progresses, the ECB has implemented its sixth rate cut in nine months, lowering interest rates by 25bps. The central bank has also raised concerns about economic growth, prompting a downward revision of the 2025 forecast to 0.9%. A potential turning point could emerge if newly elected German Chancellor Friedrich Merz follows through on his plan to amend the German constitution to ease fiscal constraints. Such a shift would enable a historic increase in public spending aimed at revitalising Germany’s sluggish economy, with potential spillover effects that could support broader Euro Area growth.

At a global level, the trade war initiated by the Trump administration has escalated further, with the U.S. President imposing  a 25% tariff on steel and aluminium imports, effective from 11 March. In response, the EU has announced swift countermeasures, planning to impose tariffs on EUR 26bn (over USD 28bn) worth of U.S. goods starting in April. Similarly, Canada will implement retaliatory tariffs amounting to CAD 29.8 billion, while China has begun imposing tariffs on key U.S. agricultural exports. The intensification of the trade dispute has significantly impacted business confidence and economic projections in the U.S. The latest forecast from the Atlanta Fed’s GDPNow model anticipates an annualised real GDP contraction of -2.4% for the first quarter. Labour market data reflects a similar trend, with job growth slowing in February—payrolls increased by only 151,000, while the unemployment rate edged up to 4.1% from 4.0%. Financial markets have responded to these economic indicators with heightened volatility. The S&P 500 entered correction territory, declining by 6% in the first ten days of March, while the Nasdaq dropped by over 7% within the same period. Inflation moderated in February to 2.8%, highlighting the overall economic slowdown.