PwC/AGEFI Monthly Barometer - October 2025

In collaboration with AGEFI Luxembourg

Economic Confidence Indicator

October 2025

The PwC Business Barometer slipped to -6 in September, down from -5 in August, as political and economic uncertainty across the EU further reduced business confidence.

The Grand Duchy entered a new era with Grand Duke Guillaume succeeding his father, a transition symbolizing continuity and renewal in uncertain times. The country continued its slow but steady recovery, with GDP growth of 0.6% in Q2, while employment stabilized as the unemployment rate remained at 5.9%. This was supported by robust wage dynamics as average compensation per employee rose 4.4% YoY, helped by May’s indexation adjustment. This wage growth offered some relief to households, even as inflation accelerated to 2.7% in September, driven by higher childcare and education costs at the start of the school year. The resulting squeeze on purchasing power was softened by declining travel and energy prices, which limited MoM inflation to -0.1%. The construction sector remained a notable drag, with job losses persisting despite tentative stabilization in housing demand. Yet the real-estate market showed flickers of life: existing house prices rose 7.1% YoY in Q2, and transaction volumes surged ahead of the expiration of temporary tax incentives. In this environment, the government’s plan to cut electricity prices in 2026 was met with cautious optimism, seen as a step toward sustaining domestic demand.

Confidence across the euro area remained subdued in September, as modest gains in services failed to offset a renewed slowdown in industrial activity. New orders grew only marginally, and exports demand weakened further, underscoring Europe’s dependence on domestic resilience amid faltering global trade. Brussels’ decision to match Washington’s 50% tariffs on imported goods reignited trade tensions, positioning the bloc to defend its industrial base while preserving Beijing’s goodwill amid the ongoing UK steel crisis. At the same time, the EU’s internal agenda grew more fractious as Brussels urged member states to channel rising defence budgets into shared capabilities and weighted the use of frozen Russian assets held in Belgium to fund the reconstruction of Ukraine. France’s renewed political upheaval, marked by Prime Minister Sébastien Lecornu’s resignation within days of taking office, compounded investor unease and cast a shadow over Europe’s fiscal cohesion.

From a global perspective, markets are cautiously weighing the consequences of political turmoil: the recent US government shutdown and Japan’s leadership change have cast a shadow on global stability. With unclear policy paths and trade tensions, the World Bank cut its global growth forecast by 0.4 points, expecting advanced economies to struggle more than emerging markets amid uncertain US policy outcomes. The US faces mounting debt concerns, with federal debt at 125% of GDP in September and the FED’s independence under political pressure. Nonetheless, markets appear to have absorbed the impact of “Liberation Day,” as investors embraced the President’s pro-deal agenda—investment banking fees reached USD 95.4bn by the end of September 2025, the second-highest level since LSEG records began.