A couple seen on Kirchberg, one of Luxembourg City's business districts
Photo: Maison Moderne archives
Luxembourg’s GDP growth could slow to 0.7% in 2020 and 1.7% in 2021, but that’s in a worst-case global recession scenario. Statec on Monday morning provided an updated economic outlook on how the Covid-19 spread could potentially impact the grand duchy.
The statistics agency stated as a reminder that a slowdown phase had already been underway in 2019, partly due to consequences of the trade tensions between the US and China, the latter of which had already seen a slowdown in exports when the outbreak first began.
“China does not represent--directly--a major economic partner for Luxembourg,” stated Statec, given that it’s Luxembourg’s 14thpartner country in terms of goods and services exports, with Luxembourg exports being mainly metallurgical products (25%), followed by machine tools (20%), rubber and plastic products (15%).
While China is the export market for around 1% of the grand duchy’s total goods/services export, the share rises slightly if taking Hong Kong into account (2%), given the financial services exchange.
Nevertheless, even if China isn’t a main trading partner, given the global nature of trade and China’s rising influence on global chains, there is the possibility of issues with supply, including inputs used in production elsewhere, which could delay delivery times.
“The fact that industrial production is more managed according to a just-in-time strategy (with few stocks) reinforces this problem,” Statec adds.
“No major signs of concern”
The aforementioned scenario is being considered worst case, but the growth in Luxembourg in 2019 was thanks mainly to non-financial services.
Last year the grand duchy also witnessed a real GDP growth of 2.1% over one year (first three quarters of 2019), mainly due to non-financial services. Job creation levels also remained strong, according to the agency, in part due to relocation activities in light of Brexit, the opening of several major commercial sites, etc.
“It is still too early to detect a possible effect of the Covid-19 epidemic on Luxembourg’s export and import figures,” Statec states. Recent indicators include data from February 2020--as a reminder the first confirmed Covid-19 case in Luxembourg was announced on 29 February.
“In Luxembourg, they show no major signs of concern, exepct in the area of non-financial services. We must remain cautious about this strong deterioration signal for non-financial services, as the data for February are still being validated.”
Nevertheless, the agency highlights the drop in the stock market, an environment which it calls “decisive for the Luxembourg economy” and adds that the recent downturn “does not bode well”.