Luxembourg: GDP stabilizes in the final quarter
GDP stagnated on a seasonally adjusted quarter-on-quarter basis in Q4, an improvement from the 1.4% contraction recorded in the third quarter. On an annual basis, GDP slid at a milder rate of 0.7% in Q4, compared to the previous period’s 2.1% contraction. In addition, GDP data for Q3 and Q1 was revised downward, meaning that the economy shrank 1.1% over the year as a whole, the worst performance since 2009 and only the seventh time the economy has shrunk since comparable records began in 1961. That said, the data may be revised ahead; Luxembourg’s GDP figures tend to be volatile due to the importance of the financial sector.
Household spending increased 1.2% in the fourth quarter, which contrasted with the third quarter’s 1.0% contraction. Government consumption growth hit an over two-year high of 1.6% in the final quarter, up from the third quarter’s 1.2%. Meanwhile, fixed investment contracted 5.1% in Q4, worsening from the 2.4% decrease recorded in the previous quarter. On the external front, exports of goods and services deteriorated, contracting 0.8% in Q4 (Q3: +0.4% s.a. qoq). Meanwhile, imports of goods and services flatlined in Q4 (Q3: +0.6% s.a. qoq).
Our panelists expect GDP growth to gradually gain steam this year as inflation abates and interest rates are cranked down by the ECB. Over 2024 as a whole, our panelists expect the economy to grow 1.5%, a rate below the average of the preceding 10 years.
On the outlook, EIU analysts said:
“Growth in 2024 will be driven by slowing inflation (which will strengthen household spending), loosening monetary policy from the second half and a rebound in export growth. Financial services exports are the traditional driver of growth in Luxembourg, and this sector will remain dominant in 2024. Real GDP growth will accelerate to 2.4% in 2025.”