Economy weathering Covid-19 storm, business lobby says
Luxembourg’s economy has weathered the Covid-19 storm better than many of its neighbours, but making firm predictions for next year remains difficult, the country's Chamber of Commerce has warned.
In its annual conference for 2020, the nation's chief business lobby called on the government to adapt its support measures over coming months to help businesses deal with the changing nature of the pandemic.
It also said the self-employed were particularly exposed and were "twice as likely to fall into poverty" as employees.
The Chamber warned that it was clear that the second wave of the pandemic and accompanying restrictions will “affect our economy and numerous businesses in 2021”.
ICT and finance
Whilst the arrival of vaccines was a positive step, it would likely be “several months” before the first long-term effects were visible in the economy, the Chamber said.
On Luxembourg’s strong economic performance, the Chamber said: “This is explained, in part, by the structure of its economy, largely focused on services and finance (which counts for more than a quarter of GDP), a sector which has performed well to date.”
The financial sector suffered a slight drop of just 2.8% and 0.9% of added value in the second and third quarters respectively, while the ICT industry in Luxembourg saw its workforce rise and experienced an average growth of more than 10% in added value in the first three quarters of 2020.
After a rise at the start of the pandemic in April and May, unemployment in the Grand Duchy remains stable, at around 6.3%.
Citing recent figures from the statistics agency, the Chamber said that although growth is expected to return again in 2021, it will not “be at pre-crisis levels” and will remain dependent on “factors which are difficult to forecast” such as the trajectory of the pandemic and consumer confidence.
In the third quarter of 2020, GDP growth was up 9.8% on the previous period.
If similar circumstances repeat themselves in the final part of the year, according to the Chamber, it would mean a drop of just 1.4% in GDP in Luxembourg for 2020, an outlook which “is more favourable” than predictions made at the start of the pandemic.
Luxembourg’s figures are strong compared with the likes of its neighbours France and Belgium, with the Chamber outlining that recovery in both of those countries is set to be slow. Unemployment in France is forecast to reach more than 10% next year and is set to stay at that level into 2022.
Nonetheless, many challenges remain for businesses in Luxembourg, varying on the sector concerned.
Different scenarios are possible, the Chamber explained, depending on the arrival of a vaccine and the continuation of restrictions.
Whilst sectors such as ICT and finance have emerged relatively strongly, there is a risk of further unemployment and bankruptcies in areas more directly affected, such as tourism and hospitality.
Chamber figures showed that hotels were operating at just 29% occupancy levels in October, while there was an 80% drop in turnover in the events sector.
The business group has urged the government to step up its support for the more than 30,000 self-employed in Luxembourg.
The self-employed, the Chamber warned, are “twice as likely to fall into poverty than employees”, as they generally enjoy much less protection from the social security system and are more likely to be working in “very exposed sectors”.
The “gradual halting of aid” from the state was listed as one of the key challenges facing the self-employed as they head into 2021.
For the construction industry - which has already seen a sharp drop in activity - the Chamber said that there are potential obstacles ahead if local authorities decide that they cannot proceed with investment plans due to their own budgetary pressures.
The Chamber has set out a number of recommendations for helping recovery, including preserving Luxembourg as an attractive option for investors, not imposing additional costs on businesses and adapting aid to companies as the pandemic develops.
The business group has also urged the government to promote economic diversification and maintain investment in public projects, so that they “act as a lever for attracting private investment”.