In the euro area, GDP grew by 0.3% in the first quarter. This sign of recovery “seems fairly general across all member states,” Luxembourg's statistics office Statec noted in its monthly report. Another positive factor was the easing of fixed interest rates and the stabilization of variable interest rates. The average interest rate for new variable-rate mortgages was 4.9% in March (+1.2 percentage points over one year), compared with just 3.7% for fixed-rate mortgages (-0.3 percentage points), the report noted.
But other signs are less positive. In the construction sector, Staytec highlights a “decreasing visibility”. In Luxembourg, the duration of business activity has been falling sharply since mid-2022, which means fewer and fewer new projects and unfilled order books. In April, more than 50% of construction companies in Luxembourg reported a shortage of demand, “much higher” than in neighboring countries and the euro area. “This has an impact on the employment outlook for the sector, which continues to deteriorate (although it seems to have bottomed out in the euro area)”. Hiring in the sector is expected to fall by 16% by 2023.
Car sales are also seen as a good indicator of the economic situation, as they are a gauge of consumer confidence. Car sales are often financed by loans, so they also reflect households' spending ability and willingness. Luxembourg is facing a gasoline shortage at the beginning of 2024, after car sales rose 16.8% in 2023. According to the European Automobile Manufacturers Association, one of the reasons is the cut in subsidies for electric cars in Germany and France. However, in Luxembourg, these subsidies are valid until the end of June. Dealers cite consumers taking a “wait-and-see” stance before switching to electric cars.
Finally, in the financial sector, the market share of Luxembourg funds is declining. In 2023, investment funds based in Luxembourg were not able to regain the ground they lost in 2022. Their assets increased by 5% in 2023 after a 14% decrease in the previous year. “Luxembourg continues to account for the majority of investment fund assets managed in Europe, but its market share has declined slightly since 2021 (-1 percentage point), Statec notes, also pointing out that net asset issuance has been negative and redemptions have exceeded issuance for the past two years. Meanwhile, other countries are doing well, with the largest increase in market share being in Ireland (+1.2 percentage points since 2021), followed by France (+0.8 points), Switzerland, Italy, Turkey, Spain (+0.2 points) and Liechtenstein (+0.3 points).
This article Published in Paperjam. Translated and edited for Delano.
