Luxembourg Economic Outlook
Annual GDP growth nearly doubled in Q3 thanks to accelerations in government expenditure and exports, as well as a rebound in fixed investment. Meanwhile, private spending increased at a broadly stable rate. Turning to Q4, economic growth has likely waned. Business confidence fell to its lowest level since Q3 2020, while consumer confidence neared the troughs reached during the financial crisis in 2008. In terms of real data, industrial activity fell quicker in Q4 compared to Q3. A higher unemployment rate, still-elevated prices and low consumer confidence led retail activity to contract in Q4. That said, in Q1, available data paints an upbeat picture: In January, consumer and business sentiment strengthened, suggesting improved investment and private spending ahead.
Harmonized inflation declined to 5.8% in January from 6.2% in December—the lowest in a year. Easing energy costs caused price pressures in transport, and housing and utilities to decelerate. However, food prices continued to accelerate. In 2023, inflation should soften due to lower energy prices and rising interest rates. Commodity price swings pose risks.