Cityscape in Luxembourg

Luxembourg GDP Q4 2022

Luxembourg: GDP records sharpest contraction since Q2 2020 in Q4

GDP fell 2.3% year on year in the fourth quarter, below the 3.7% expansion tallied in the third quarter. Q4’s reading marked the worst reading since Q2 2020.

The downturn reflected contractions in private consumption, fixed investment and exports. Private consumption dropped 0.2% in Q4, marking the worst result since Q4 2020 (Q3: +3.6% yoy). Fixed investment also fell 11.5% in Q4, marking the worst reading since Q2 2020 (Q3: +4.3% yoy). In contrast, government consumption remained positive, coming in at 4.1% in Q4 (Q3: +4.9% yoy).

On the external side of things, exports of goods and services contracted 4.3% in Q4, marking the worst reading since Q3 2009 (Q3: +0.9% yoy). In addition, imports of goods and services deteriorated, contracting 4.6% in Q4 (Q3: +0.5% yoy), marking the worst performance in over two years.

Moreover, on a seasonally adjusted quarter-on-quarter basis, economic activity dropped 3.8% in Q4, contrasting the previous period’s 1.5% growth. Q4’s reading marked the worst reading since Q2 2020.

The fall in Q4 reflected downbeat domestic demand as private spending and imports shrank. However, the depth of the contraction was over-inflated by the double-digit drop in fixed investments: As a hub for multinational capital exchanges, fixed investment in Luxembourg is highly volatile. Looking at GDP by production, this is even clearer as it is in financial services that activity contracted the most at 6.4% year on year (Q3: +7.0%).

Looking ahead, GDP growth should ease in 2023: Weaker demand in Europe amid still-high inflation and tight monetary policy should dampen activity.

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