LUXEMBOURG – Household confidence, business investment, strong job market … The country’s economic fundamentals remain solid, according to Statec.
The Statec has revised downward growth forecasts for 2017 and 2018, in its conjuncture note presented on Tuesday. GDP growth should reach 3.4% this year, and 4.4% next year, against 4.8% anticipated in the studies published last spring. “This more moderate expansion does not call into question the general economic diagnosis: that of a prolonged and relatively dynamic recovery, which is gradually maturing”, analyzes the national institute of statistics and economic studies. Wages slightly up Wage growth in 2017 was mainly driven by the indexation triggered in January, but it remains moderate for the moment, observes the Statec. The average wage cost in 2018 would slow down from 3.2% to 1.9% due to a slice scheduled for later in the year – in the third quarter. Statec notes that the more favorable economic situation in the eurozone should help to bring about “a gradual increase in wages”. The indicators thus present globally favorable trajectories. The labor market shows a growth in salaried employment which stabilizes around 3% on an annual basis. But Statec does not expect an acceleration of activity or short-term employment. The unemployment rate should still continue to decline, to 5.7% annual average next year – against 5.8% at the end of October
Tax revenue up
“Business surveys, opinions, are positive. Household confidence is at a historically high level, and we also note a good vision of developments in industry, construction, non-financial services … Investments are much more dynamic this year, which is a mark of confidence in the future, “observes Bastien Larue, an economist at Statec. Inflation, supported by the rise in oil prices, has returned this year to a level close to 2%. It should slow down as of the end of 2017, with the reduction in the price of nurseries, but regain strength thereafter. Finally, government tax revenues increased significantly in 2017, despite losses in e-commerce and tax cuts related to tax reform. “These phenomena are offset by receipts of tax arrears on companies that contribute to the sharp rise, but also the indexation in early 2017, which had a significant effect on social contributions,” said Bastien Larue. The public balance should thus remain at the same level as in 2016 (around 1.5% of GDP), a net increase compared to last spring’s estimates.