'Disappointing' financial sector performance drags on GDP
Statec, Luxembourg's official statistics bureau, has rained on the parade of finance minister Pierre Gramegna after describing the performance of the Grand Duchy's financial sector over 2017 as "disappointing".
On Wednesday, Gramegna painted a glowing picture of Luxembourg's economy to lawmakers at the Chamber of Deputies, highlighting the strength of financial services and claiming that the ruling coalition government's handling of the economy over the last four and a half years had "proven the naysayers wrong".
Statec's report, however, took a rather dimmer view.
The added value of the financial sector dropped by 3.3%, weighing down the economic growth of the countryStatec
"In 2017," it said, "the added value of the financial sector dropped by 3.3%, weighing down the economic growth of the country. This performance is rather disappointing in relation to the confidence in the sector and in the markets, as well the result of the eurozone (-0.2%)."
The statistics bureau said the triple impact of low interest rates, restructuring and "regulatory adaptation" were still weighing on the financial sector's performance.
It also found that the "bad performance" of the sector had had a significant effect on Luxembourg's GDP growth.
"In 2017, Luxembourg's GDP demonstrated weaker growth than expected – 2.3% compared with a forecast of 3.4%," it said. "[This was] primarily due to the bad performance of the financial sector."
It said this "below-par" performance – particularly in light of renewed confidence in the sector, rebounding stock markets and strong job growth – was "disappointing".
[Banks] had to increase expenditure to adapt to digitalisation and the sector's growing regulations, while the outlook for their income was not as high as hopedStatec
Banks were a contributing factor.
Statec said the declining value added of the financial sector in Luxembourg was "primarily explained by the weak performance of the banks" in 2017.
It added: "They had to increase expenditure to adapt to digitalisation and the sector's growing regulations, while the outlook for their income was not as high as hoped."
As a result of this, net commission income grew by 2.7% and interest margin by 3.4% while operating costs increased to 4.9%.
For investment funds, insurance and auxiliaries, results were not as bad, but neither were they particularly strong, according to Statec.
Although income from this sector may have held up well, the increased cost of financial services related to stock-market prices had a "negative impact on the development of the volume of the funds and the auxiliaries, which ended up impacting the GDP".