PwC/AGEFI Monthly Barometer - May 2026

In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

May 2026

The PwC Business Barometer continued its sharp decline in May, falling to -20 from –6 in April, pointing to a further deterioration in business sentiment.

Luxembourg consumer confidence remained weak in April, despite improving slightly to -13 from -16. While households reported a modest improvement in their financial situation, concerns over the broader economic outlook persist. Annual inflation rose to 3.1%, up from 2.4% in March, largely driven by the renewed pressure on energy prices, reinforcing fears of a shift towards stagflation as price pressures persist while demand softens. Heating oil increased by more than 23% MoM, while fuel prices rose by 11.1%, further eroding purchasing power. This reflects continued volatility in energy markets, with Brent crude oil briefly reaching a 4-year high of USD 126/barrel before settling closer to the USD 100 mark, as negotiations between the US and Iran continue to stall, delaying any meaningful easing in price pressures. The broader macroeconomic backdrop is also weakening. The IMF highlighted slower growth prospects for Luxembourg, alongside heightened risks linked to geopolitical tensions and financial conditions, with GDP growth for 2026 revised down from 1.6% to 1.2%. In parallel, the unemployment rate rose above 6% as of March, marking a continued deterioration from recent lows and a softening labour market. Against this backdrop, the risk of stagflation, combined with the likelihood of wage indexation being triggered later this month according to STATEC, may add further pressure on corporate margins and hiring dynamics.

Across the Eurozone, the same inflationary pressures are colliding with weakening economic momentum,  further complicating the policy outlook and reinforcing concerns around a stagflationary environment. The ECB kept rates unchanged despite inflation reaching 3%, while signalling a potential rate hike in June, as geopolitical tensions continue to sustain price pressures. Economic activity has already begun to reflect this tension, with the Eurozone PMI falling to 48.6 in April from 50.7 in March, moving back into contraction territory. The decline was primarily driven by the services sector, where business activity fell for the first time in almost a year and at the steepest rate since February 2021. While output growth showed resilience in some areas, this remained limited, with the Eurozone GDP rising by just 0.1% in Q1 2026, as the IMF now expects growth to slow to 1.1% in 2026, down from 1.4% previously. At the country level, Spain expanded by 0.6%, Germany by 0.3% and Italy by 0.2%, while France stagnated at 0.0%, underlining the increasingly fragile growth environment.

Central banks globally face similar constraints between persistent inflation and weakening economic momentum. The Fed and BoE both kept interest rates unchanged at 3.5%–3.75% and 3.75% respectively, reflecting a cautious stance amid elevated price pressures and softening demand conditions. In the US, nonfarm payrolls increased by 115,000 jobs in April, pointing to continued expansion in employment, albeit at a moderating space, signalling a gradual cooling in labour market momentum rather than a sharp slowdown. At the same time, Donald Trump has threatened to impose 25% tariffs on EU-made automobiles if no trade deal is reached by July 4, adding further uncertainty to the global outlook. Structural shifts in energy markets are also emerging, as the UAE exited OPEC after nearly 60 years, potentially weakening supply coordination and making oil prices more sensitive to shifts. Despite these pressures, global equity markets have rebounded to record highs, largely driven by the AI-led rally in the US, with more limited gains elsewhere due to lower exposure to this theme.