PwC/AGEFI Monthly Barometer - October 2026

In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

October 2026

The PwC Business Barometer rose to +5 in October, up from +2 in September, indicating a modest improvement in business sentiment despite economic pressures.

Luxembourg’s economic outlook remains mixed, with limited evidence of a broad-based recovery. Industrial confidence recovered from its January low, while consumer confidence fell to -10, pointing to divergence between business and household sentiment. However, the improvement in industrial activity has yet to translate into stronger output, with industrial production falling 5% YoY in H1 2026, driven by sharp declines in metal products, steel, and capital goods, while GDP contracted 0.9% QoQ in Q2. Fiscal pressures are also building, with public debt expected to reach 30% of GDP under the 2027 budget, while a weakening labour market is adding pressure to household finances. Unemployment reached 6.5% in August as per STATEC, with the Eurostat measure at 7.3% - among the highest rates in Europe, while jobseekers aged 30-44 increased by close to 14% YoY. At the same time, renewed energy pressures are feeding into inflation, which accelerated to 2.9% in September from 2.2% in August, as energy prices rose 6.4% MoM and 12% YoY. Heating oil prices increased by 12.6% MoM, while diesel rose 8.5% MoM to remain above €2 per litre, and petrol prices rose by 8.8%. With petroleum products accounting for 5.2% of household consumption, further energy price increases could place additional pressure on household purchasing power.

Across the Euro area, economic activity is holding up but being tested by inflationary pressures and tighter financial conditions. The Composite PMI reached a 3-year high of 53.1 in September, while annual inflation accelerated to 3.8% - its highest level in 3 years - with significant differences across major economies: Spain reached 5.0%, Italy 4.1%, France 3.4% and Germany 3.3%. Hourly labour costs also rose by 3.1%, adding to the underlying cost pressures. In response, the ECB raised its policy rate again by 25bps, while its latest staff projections see headline inflation averaging 3.0% in 2026 and 2.5% in 2027. Energy security remains another source of risk as Europe approaches winter with gas storage around 70%, leaving a narrower buffer against supply disruptions and renewed price pressures. Meanwhile, fiscal concerns are spilling into financial markets, with the spread between French and German 10-year bond yields widening to around 146bps, while the euro fell to $1.1161, its weakest level since May 2025.

Globally, the outlook is increasingly shaped by persistent energy pressures, with Brent Crude still above US$100 per barrel, alongside elevated public debt and risks surrounding AI investment. In the US, nonfarm payrolls rose by just 29,000 in September, while the unemployment rate increased to 4.2%, signalling a marked slowdown in labour-market momentum. Inflationary pressures also persisted, with PCE inflation at 3.4% YoY in August, while the Fed raised its policy rate by 25bps to 3.75%–4.00% in September. Meanwhile, global bond markets came under pressure, with the 10-year US Treasury yield reaching 5.34%, its highest level in 24 years, while UK 30-year gilt yields touched 6% - their highest in 28 years. The BOJ also raised its policy rate to 1.25%. Despite these pressures, the OECD projects global GDP growth of 2.9% in 2026 and 3.0% in 2027, although persistent inflation, elevated borrowing costs and fiscal pressures continue to weigh on the outlook.

Overall, the economic conditions remain uncertain as momentum varies across regions and renewed inflationary pressures weigh on the recovery. We expect the trajectory ahead to depend increasingly on how energy prices feed through to inflation, monetary policy and borrowing costs.