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PwC/AGEFI Monthly Barometer - May 2022

The Monthly PwC Business Barometer

Economic Confidence indicator in collaboration with AGEFI Luxembourg

PwC/AGEFI Monthly Barometer - May 2022
Inflation and uncertainty further reduce confidence

Key Takeaways

  • The PwC Business Barometer decreased by 8 points during the past month, reaching a level of 10 as of end-April.
  • Households in the Grand-Duchy are faced with rising prices for many consumer goods and services, leading to more pessimism and a potential pullback in demand.
  • Growth in the eurozone services sector was outstanding during April, despite increasing costs and a cautious outlook for the coming months.
  • The multidimensional impact of the Russia-Ukraine conflict must be carefully assessed by policymakers across the globe as stagflation is looming on the horizon.
In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

May 2022

The PwC economic barometer decreased by 8 points during April to reach 10, extending the sharp decline observed during March. A combination of rising prices, reducing purchasing power and the conflict in Ukraine lead to reduced consumer confidence and were the key drivers behind the drop in our barometer level.

As a result of rising prices, consumer confidence in the Grand-Duchy has taken a heavy hit, with the majority of households feeling pessimistic about their finances and the economic outlook in general. This could result in a drop in consumption which is expected to last for a significant period of time, although not being as severe as the drop observed during the early stages of the COVID-19 pandemic in Europe. A slowdown in demand is already evident in the residential real estate market of the country, as apartment sales decreased by 12% year-on-year during the second half of 2021, while price growth also eased (12% growth YoY in Q4 2021 compared to 17% growth YoY in late 2020). A tightening of credit conditions coupled with increasing interest rates for long-term government bonds are also slowing down the housing market in the country, with the latest banking survey in Luxembourg confirming the decline in new mortgages during the past 2-3 quarters. Nevertheless, employment growth remained positive during the first quarter of 2022 (increasing by 3.7% YoY), despite a mild decline in employment prospects during March.

Composite data for the eurozone indicated an increase in business activity during April as the PMI increased to a seven month high of 55.8 (up from 54.9 in March). Fewer COVID-19 restrictions boosted demand for services, with the latter outperforming manufacturing once again. Even though this indicates a rather resilient profile for the eurozone economy, business costs continued to rise and were eventually passed on to end consumers in an effort to maintain reasonable margins, hence further fuelling inflation. Nevertheless, domestic demand remained elevated (given an increase in unfinished work) and, despite a drop in exports, overall operational capacity was increased. Regarding the outlook, businesses remain more cautious for the coming months, given the stagnation of manufacturing growth, the uncertainty generated by the Russia-Ukraine conflict as well as the accelerating inflation that is reducing purchasing power and could lead to a significant reduction in demand.

The effect of the Russia-Ukraine conflict on global economic growth is one of the key themes of the latest “World Economic Outlook” report by the IMF. The publication highlights that, apart from the GDP contractions expected in Ukraine and Russia, the spillovers of this conflict into commodity prices, financial markets and global trade should be carefully evaluated by policymakers. In addition, the report highlights that numerous emerging economies are more severely hit by increasing commodity prices and interest rate hikes, further hampering their growth prospects for the coming years. The IMF expects world output growth to reach 3.6% in 2022 (down 0.8% from the January estimate of 4.4%), while the eurozone output growth is estimated at 2.8% (down 1.1% from the January estimate of 3.9%). These drops in expected output, combined with an increasing and persistent inflation set the stage for a stagflationary environment in the short to medium term that could potentially destabilise several advanced and emerging economies across the world. It also creates a challenge among policymakers, as they will have to decide on a policy that balances between taming inflation and promoting economic growth.

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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