Luxembourg: Growth loses steam in Q3, but underlying conditions strengthen
November 30, 2021
Economic growth eased from 12.6% year-on-year in the second quarter to 5.3% year-on-year in the third, according to a flash estimate. This marked the softest pace of growth since the fourth quarter of last year, and reflected a notably less favorable base effect.
While a detailed breakdown of national accounts data is set to be released on 13 December, high-frequency data suggests that the headline reading was driven by a deterioration in household spending. Retail sales contracted on average in the quarter, swinging from a strong expansion in Q2, while consumer sentiment turned more pessimistic in the same period.
On the other hand, underlying momentum seemingly improved in the third quarter. The economy expanded 0.9% on a seasonally-adjusted quarter-on-quarter basis in the period, after flatlining in the second quarter.
In the final stretch of the year, economic activity will likely be dented by tighter Covid-19 restrictions, which were implemented on 19 October and will remain in place until at least 18 December. Next year, the pace of economic growth is forecast to ease compared to this year, although this will be largely due to a less favorable base effect. Domestic and foreign demand should strengthen next year and a stable labor market at home will provide further support to household consumption.
Author: Jan Lammersen, Economist