PwC/AGEFI Monthly Barometer - March 2018

We were hit by a slightly cold blow this month when our barometer dropped by 9 points after its peak in February, settling at +17.

In Luxembourg, trust is falling despite the rather positive macroeconomic indicators. The global stock market 's near correction we saw in February most likely played a large role in this decline. Statec forecasts an average growth 4% from 2018 to 2020, well above the Eurozone, which should remain just above 2% over this period. Luxembourg's growth would then remain at around 3% until 2022. This is despite monetary tightening and rising rates in the medium term. Overall, this growth is expected to reduce unemployment to 5% and be accompanied by a relatively low inflation rate of around 1.4% in 2018 and 1.8% in 2019.

Europe was not immune to the near correction either. The Euro Stoxx slumped 9% in 10 days in the beginning of February. Despite the rise in world trade, the strong euro effect is starting to be felt on European exports. The rise in new orders slowed in February, which translated into a slight drop in Markit's manufacturing PMI, at 58.6 in March, down from 59.6 in January. This slight slow down in orders could continue in the coming months, but it 's unlikely to immediately weigh on production, as order books are full and production arrears continue to increase. Like the IMF last month, the European Commission has revised its growth forecasts upwards for the Euro area and now expects a 2.3% growth for 2018, up from 2.1%. Despite the strong euro, the ECB 's durably accommodative policy - with no rate hike expected before the end of 2019 - and low inflation will continue to favour exports, which is supported by the recovery in world trade.

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