Economy & Politics

Towards a possible end of recession

Statec foresees a rebound in activity in Luxembourg for this third quarter, after six very gloomy first months. But the country’s future situation remains intimately linked to the evolution of the covid crisis.

Patrick JACQUEMOT

Statec foresees a rebound in activity in Luxembourg for this third quarter, after six very gloomy first months. But the country’s future situation remains intimately linked to the evolution of the covid crisis.

Can Luxembourg fall lower? At a time when the announcements of social plans are multiplying, where the unions warn of the risks of social breakdown and where activity seems to be struggling to resume, one might think so. For Statec, the hope of a recovery is still to be taken into account. The Grand Duchy is coming out of the crisis better for the moment than its European neighbors, judging in particular by the evolution of its GDP.

Admittedly, for two quarters, Luxembourg’s gross domestic product has steadily fallen. After the first three months of the year marked by a decrease in the production of national wealth of -1.4%, the following three months recorded an even more marked slowdown (-7.2%). If the statisticians recall that this is “the strongest drop ever recorded in the country over a quarter”, the comparison on the scale of the Euro zone tempers any disaster. In fact, at the same time, the Member States saw their GDP on average decrease by -3.7% before March, and -11.8% until June.


Wi, Bank ranking .Finanzplatz Luxemburg.Foto: Gerry Huberty / Luxemburger Wort

Present Monday before the Finance and Budget Committee, Claude Marx, director of the CSSF, ensures that the financial institutions of the Place have sufficient liquidity to respond to the consequences of the cessation of activities to come.


But after these two quarters of decline, Statec wants to believe in better days. Recession “is unlikely to last into the third trimester», Writes the organization in its letter of conjuncture published Wednesday.

Between June and September 2020, the hypothesis would rather be that of a “rebound of a quasi-mechanical nature“. Hear that the end of large-scale containment and the resumption of business activity should translate positively. An optimistic hypothesis shared by the Idea Foundation already. It remains to be seen at what scale?

Because although it has improved this summer, Statec is already warning that it cannot translate into “a spectacular rebound in consumption”. Of course, households claim to have confidence in the country’s future, but uncertainty still hangs over their own financial situation for the end of 2020. No question of relying on individuals therefore to make major purchases; attitude that would not no leverage effect on national activity.


Arbeitsminister Dan Kersch - Foto: Pierre Matgé / Luxemburger Wort

Dan Kersch spoke about the health crisis and its economic consequences, in particular on the evolution of the labor market. The Minister of Labor and Employment also raises the question of taxation.


Among the clouds that could darken the socio-economic landscape of Luxembourg, Statec obviously evokes a possible rise in unemployment. Admittedly, since last May, ADEM has only observed a decrease in the number of job seekers. 18,525 unemployed at the last statement August compared to more than 20,300 in April. But analysts fear that the curve will start again towards the tops.

Indeed, we will have to count in the coming weeks on a gloomy outlook. Nothing reassuring, in terms of employment, in the announcements of social plans made by groups like Guardian, ArcelorMittal or the Luxemburger Wort. Not to mention the inevitable rise in hitherto contained bankruptcies. “The latest figures on unemployment flows show a much higher number of new registrations”, note the specialists. This while partial unemployment has reached a historic ceiling with 20,000 beneficiaries currently (i.e. 5% of salaried employment).

Luxembourg limits breakage

Statec

If the recession is to end, Statec knows that the major factor remains the control of the coronavirus epidemic. While Luxembourg has already recorded some cases of contamination and the arrival of an effective vaccine is slow, the covid weighs heavily on the development of the economy of the Grand Duchy in the short term. And analysts add yet another caveat to their 2020 projection of a possible end of recession: “Other elements are also likely to weigh on activity such as the uncertain outcome of Brexit or the threats of international trade tensions.”

So heavy. In order to give ourselves a positive breath, let us therefore rather retain this observation of Statec after the analysis of the first six months of the year: “Luxembourg limits the breakage”. This is already taken.


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