Economic Barometer: Optimism In The Finance Sector

(from left to right): Christel Chatelain, Director of Economic Affairs – Carlo Thelen, Managing Director – Bérengère Beffort, Head of Public Relations, Marketing & Communication (© Chamber of Commerce Luxembourg).

The 2024 Economic Barometer shows improvement in Luxembourg’s business confidence amid persistent challenges. While the financial service sector gives cause for optimism, others like HORECA & construction remain strained. 

The Chamber of Commerce’s 11th biannual Economic Barometer survey, conducted from April 8 to 29, gathered insights from 711 companies with six or more employees. Covering the first half of 2024, the Economic Barometer paints a mixed picture of the Luxembourg economy. 

Over the past three years, the business environment has been strained by geopolitical tensions, high labour costs, persistent inflation, and interest rates that hinder investment. Despite these challenges, some sectors, such as services and transport, are beginning to show optimism, while others like HORECA and construction remain under pressure.

The overall score has slightly improved from 48.9/100 in the second half of 2023 to 49.5/100. This marginal increase is attributed to less pessimistic profitability forecasts and a slight rise in confidence in the Luxembourg economy.

Rising confidence but stagnant activity

Business leaders’ confidence in the future of the Luxembourg economy has shown a modest increase for the first time in three years, rising from 64% in the second half of 2023 to 67% in the first half of 2024. However, this confidence isn’t uniform across sectors. 

While the transport (80%) and financial services (77%) sectors are particularly optimistic, confidence levels in the construction (56%) and HORECA (51%) sectors are notably lower.

Despite this slight uptick in confidence, business activity hasn’t met expectations. Only 20% of respondents reported an increase in activity over the past six months, down from the 28% who had anticipated such growth. 

Moreover, 34% of business leaders reported a decline in activity, double the 19% who had expected it. Looking ahead, only 24% anticipate an increase in activity for the next six months, while 54% expect stagnation.

This has also led to employment prospects remaining flat, with 65% of business leaders expecting their workforce to remain stable, 18% anticipating an increase, and 17% predicting a decrease.

Profitability and investment concerns

Profitability remains a major concern, with only 18% of companies expecting an improvement in the next six months. Although this is a slight improvement from the previous semester, 28% of businesses still foresee a decline in profitability, particularly in sectors like construction (43%) and commerce (33%).

Investment plans are also affected by high interest rates, with 27% of respondents expecting to reduce their investments in the next six months, up from 21%. A majority (57%) plan to maintain their current investment levels, while only 18% anticipate increasing their investments. These investments will primarily focus on renewing outdated equipment (43%), modernising facilities (32%), and introducing new products or services (26%).

Housing, pensions and absenteeism

The Economic Barometer also explored current socio-economic challenges, including the housing crisis, pension system sustainability, and rising absenteeism. High interest rates, lack of affordable housing, and stringent credit conditions are major contributors to the housing crisis, impacting business operations and talent retention. Only 24% of respondents believe the housing crisis will ease in 2024.

Regarding the pension system, 35% of respondents prioritise reducing the gap between the legal retirement age (65 years) and the average retirement age (61 years). Other measures include adjusting supplementary insurance periods (22%) and extending the legal retirement age (21%).

Absenteeism has become a significant issue post-pandemic, with 42% of respondents reporting an increase in absenteeism, which has strongly impacted their activities. Companies call for stronger measures to combat absenteeism, including administrative checks and medical re-examinations.

European elections and policy priorities

As the European elections approach, Luxembourg’s business leaders emphasise the need for reduced regulation (49%), reindustrialisation of Europe (43%), and strengthened energy sovereignty (36%) as top priorities for the European Union in the next five years. Carlo Thelen, CEO of the Chamber of Commerce, highlighted this paradigm shift in economic policy to support businesses better and enhance the internal market.

In summary, while Luxembourg’s economy shows some signs of recovery, significant challenges remain. Business leaders call for continued support and strategic measures to ensure sustainable growth and stability.

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