PwC/AGEFI Monthly Barometer - February 2018

Reflecting a surge in confidence among Luxembourg manufacturers, our barometer has continued to rise and has reached +26. Its highest level in 6 months.


Locally, growth carried over from 2017 stands at 2.7%. Depending on fourth-quarter performance, yearly growth could reach 3.4%. This growth is largely driven by household consumption and services to companies. In fact, the latter sector significantly contributed to improving employment overall. Jobs in this sector grew by 6.5%, twice as much as other sectors. Unemployment does however still stand above pre-crisis levels – 5.9% compared to 4%. Though, we do expect the downwards trend to continue in 2018. Over the first 10 months of 2017, the amount of new mortgages issued by domestic banks to both Luxembourg and Eurozone households rose by 10.4% year-on-year. This is largely due to steady demand for fixed-rate mortgages, which accounted for 59% of new mortgages. New adjustable-rate mortgages continued to decline, dropping by 4%.

Turning to the Eurozone, the future looks bright as GDP grew by 2.5% in 2017, outpacing the US. The IMF has revised its growth projections upwards to 2.2% for 2018 and 2.9% for 2019. The PMI has also reached its highest level since June 2006, reaching 58.8. These could point to a first quarter growth of nearly 1%. Employment levels were up across the Eurozone in 2017, especially in Spain. At the same time, investment levels have increased, driven by monetary easing policies which are expected to continue until at least September 2018. Inflation however struggled to reach 1.4% in 2017, standing well below the expected 2% mark, despite oil price increases. While the euro’s appreciation against the dollar certainly threatens inflation, the first surveys conducted in 2018 point to potentially higher inflationary pressure. Nonetheless, for the time being, it would seem that a strong euro has not had an adverse impact on exports, as the EU trade balance remains clearly positive.

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