Luxembourg Economic Outlook
Fitch maintained its AAA rating for Luxembourg and said the country's economic outlook remains stable, echoing similar assessments made recently by DBRS, Moody's and Standard & Poor's.
2019 year growth prospects remain upbeat despite sluggishness across the Eurozone and a weaker-than-expected first half of the year at home. Economic sentiment was roughly stable through the third quarter before slipping at the outset of the fourth, although a slight decline in the unemployment rate through the same period is expected to buffer household spending. Meanwhile, deteriorating industrial metrics could point to subdued fixed investment through the remainder of the year—although output across sectors has been inconsistent. All this follows a second-quarter pullback in domestic demand, weighed down by a breather in household spending and another contraction in fixed investment.
Luxembourg Economic Growth
Homegrown gains, bolstered by elevated economic sentiment and recent tax reforms, should sustain broad-based but more moderate growth next year. That said, household debt and investor capital flight remain downside risks. Financial services exports will be key to growth over the medium-term. FocusEconomics analysts see growth at 3.2% in 2019, down 0.1 percentage points from last month’s forecast, and 3.0% in 2020.
The fall in unemployment is likely to continue
The trends observed in terms of employment and unemployment in the Grand Duchy remain favourable; they are in line with those of the euro area as a whole. Underemployment continues to decline. According to a number of opinion polls among businesses, this trend was maintained in early spring. Employment is therefore set to accelerate further this year, slightly faster than anticipated in previous forecasts, despite upheavals in the financial sector. A slight slowing down is expected in 2019, but that should not prevent the level of unemployment continuing to drop, from 5.9% of the active population in 2017 to 5.4% in 2019.
Rosy outlook for public finances
With the healthy resumption of growth in public revenue in 2017, most fiscal bases are doing well. It ought to be possible to maintain growth in revenue in the neighbourhood of 5% in 2018 and 2019. After having almost doubled in 2017, the growth rate for public expenditure ought to slow down, reaching a level of about 4% in 2019. On the basis of these projections for revenue and expenditure, the public balance ought to improve, exceeding 2% of GDP, compared with 1.5% each year since 2014.
