Luxembourg: Economy contracts at record pace in Q2
GDP plunged 7.8% year-on-year in the second quarter, contrasting the 1.5% expansion logged in the previous quarter and marking the worst reading on record.
Private consumption nosedived 19.4% year-on-year in Q2, a significantly greater drop than Q1’s 2.7% contraction and reflecting the impact of Covid-19 containment measures. Furthermore, fixed investment plummeted 19.6% annually, more than Q1’s 13.9% decline and marking the worst drop since Q4 2013. That said, public spending growth accelerated to 6.1% from Q1’s 3.8%, as the government deployed a wide range of fiscal measures to stimulate the economy.
On the external front, exports of goods and services contracted 2.9% year-on-year in Q2 amid global lockdowns and severed supply chains, swinging from Q1’s 2.5% expansion and marking the worst reading since Q1 2016. Similarly, imports of goods and services contracted 3.6% in Q2 (Q1: +0.6% yoy).
On a seasonally-adjusted quarter-on-quarter basis, GDP declined 7.2% in Q2, a more pronounced drop than Q1’s 1.4% decline and marking the sharpest downturn in the series’ history.
GDP is expected to contract heavily this year as activity is hit by the Covid-19 pandemic. In addition, the extreme openness of the economy and dependence on the financial sector make Luxembourg particularly susceptible to external shocks. That said, the country’s sound public finances and strong governance should support the recovery.