PwC/AGEFI Monthly Barometer - October 2023

The Monthly PwC Business Barometer

Economic Confidence indicator in collaboration with AGEFI Luxembourg

PwC/AGEFI Monthly Barometer - September 2023
Previous slight uptick erased by overarching slowdown

Key Takeaways

  • The PwC Business Barometer decreased by approximately 3 points from -8 of August and September, reaching -11 in October.
  • Despite a rise in household consumption, retail sales in Luxembourg witnessed a decline last month, excluding products primarily purchased by foreign consumers, amid weakening retail and consumer sentiment within the Euro Area.
  • As interest rates in the Euro Area approach their peak in a battle against persistent inflation, the regional economy is clearly slowing, with output decreasing in both manufacturing and in services.
  • Rising geopolitical uncertainties in key oil-producing regions, coupled with production cuts, pose a potential threat to global inflation-fighting efforts as oil prices surge.
In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

October 2023

The barometer continued its decline that began in the second quarter, reaching -11 at the end of the third quarter, suggesting that the slight upturn observed in September was only a temporary break from the overall downward trend of the euro area economy.

The decline was driven by a drop in consumer confidence in the euro area and particularly in Luxembourg, where consumer confidence fell by almost 3 points to reach -16.5 in September. Admittedly, the fall in consumer confidence was not reflected in the headline sales data for Luxembourg, which rose by 5.5% year-on-year in the first seven months of 2023. However, the positive trend in sales was mainly due to increased demand from foreign consumers, driven in particular by distance selling and fuel. Conversely, although household consumption rose last year, the increase was mainly due to a significant rise in car purchases (+20% in Luxembourg), while retail sales fell in a context of persistent inflation. Headline inflation in the Grand Duchy fell slightly to 4.1% in September, but the figure was pushed up by rising fuel prices. Finally, on the employment front, the seasonally adjusted unemployment rate in Luxembourg remained broadly unchanged in the latest data from August, rising from 5.2% to 5.3%. However, quarterly employment growth in Luxembourg fell to its lowest level in ten years, excluding the COVID crisis, largely due to subdued growth in trade, transport and hotels and restaurants.

The economic picture was less nuanced in the broader euro area, where business activity is clearly slowing in the face of falling demand and household savings rates have risen for the fourth consecutive quarter. Output fell in both the manufacturing and services sectors in September, as companies worked through their backlogs of work due to insufficient orders. Although employment rose again last month, the increase came only from the services sector, highlighting the lagged response of manufacturing and services to the economic slowdown in the euro area. This two-speed economy is also reflected in the latest inflation figures, with inflation in services but deflation in manufacturing. In summary, a sharp fall in demand in a cooling euro area economy paints a gloomy picture for businesses in the year ahead.

With the Federal Reserve approaching what could be its interest rate peak, hopes of a downward adjustment in the near future are fading fast in the face of persistent inflation. A prominent contributor to global inflation this quarter, which shows no signs of abating, is oil. Demand for fuel remains robust, but major producers continue to restrict supply. In addition, the recent military attacks on Israel may put additional upward pressure on prices as the market prices in the potential risk of escalation in the region, which could further restrict the supply of key fossil fuels.

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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