household blues affect growth

As 2022 draws to a close marked by record inflation, Statec rules out the risk of a recession – especially thanks to tripartite measures – but expects growth of 1.7% this year and just 1.5% in 2023.

In recent months, a more dangerous mission than Statec forecasters is responsible for predicting the unexpected in an economic context shaken by multiple crises. Nevertheless, experts of the National Institute of Statistics on Monday presented their analysis for the year 2023 after concluding the last year.

Not surprisingly, it is historically high inflation that will mark the year 2022 in Luxembourg, approaching 7%, a level not seen in 40 years and well above the 2% annual average over the past 20 years. A figure lower than in the Eurozone, where price growth was more than 10%.

“We have a 40% increase in the price of gas in the Grand Duchy, and in the euro zone it rises to 80%. Even though food prices are inflated by 15% in a year, with a peak of 20% for butter or pasta, we have less growth,” says Bastien Larue, head of the department.

A widespread phenomenon resulting from the war in Ukraine and its impact on energy prices, which has weighed heavily on national economic activity: “We are witnessing a 2-year decline.e In the quarter of 2022, especially in industry and construction, the sectors that are particularly suffering from the decline in demand,” he continues.

Industry and construction are suffering from reduced demand. Photo: Julien Garroy

In particular, the decrease in loans related to the increase in interest rates on real estate loans and the tightening of concession conditions directly affects the construction of residential buildings: “The number of building permits decreased by 35%, and the prices of advertised apartments decreased by 35%. slows down hard and fast. At 2 we were still up 10%e quarter, and in October, a 3% decrease compared to 2021 was already forming”, the economist notes.

Although opinion polls since the spring have shown this deterioration in the confidence of players in most economic sectors, the confidence of consumers, who are more worried than ever about inflation, has hit rock bottom. According to experts, the aid measures discussed within the framework of tripartite agreements are absolutely necessary for this reason: “They will greatly support the purchasing power of households and businesses, allowing activity to progress slightly. Up to +1.7% of GDP. in volume this year and +1.5% in 2023.

These measures – limiting the increase in the price of gas, freezing the price of electricity, lowering the price of a liter of cooking oil, lowering the VAT – significantly reduce household costs, preventing inflation, which mechanically leads to the creation of new index tranches. Statec had hoped for five consecutive index increases in 2023 if no action was taken.

Thanks to the measures, 1023 euros were saved

And to assess the true impact of these decisions on household purchasing power, the institute examined various parameters. It concludes that the tripartite measures will greatly benefit the most modest households, with them not having to pay more than €150 in 2022 and €1,000 in 2023 (compared to 45 and 423 without any measures). According to economists, what “overcompensates” the deficit due to lower indices.

On the contrary, the highest income groups will be negatively affected because their budget is less for consumption. Overall, household disposable income, which stagnated in 2022, will grow by 2% next year, according to Statec.

Still related to high inflation, wages for companies explode under the influence of these successive indices: +6.3% this year and +5.6% forecast in 2023. Vacancies have slowed after a record year, with an expected impact on investment such as job creation.

The increase in unemployment is obvious

Therefore, the institute logically predicts unemployment to rise to 5.1% in 2023 (versus 4.8% this year). Bastien Larue, “The reversal of the trend is clear. Surveys show that the situation has worsened in most sectors.”

Finally, on the public finance side, and with the draft of the 2023 state budget to be voted on by the deputies on December 15, Devletch highlights the good indicator of revenues: they have been stimulated by VAT, household taxes in recent months. and a slowdown in social insurance payments occurred in 2e quarter, especially due to the decrease in fuel sales in favor of the neighboring countries, which are cheaper, and the fall in the stock markets.

A trend that should increase in 2023 in parallel with the increase in public spending. Thus, a deficit of 2.8% of GDP was announced, a sharp downward revision compared to previous forecasts, reflecting the deterioration of the economic situation and the measures envisaged in the tripartite agreement.

Three indices in 2023?

Serge Allegrezza, director of Statec, confirmed again that the index should be launched on tranche The quarter of 2023, he said, without giving a date: “We can’t say exactly when, but it will probably happen at the beginning of the year, in January or February.”

Recall that the second installment, postponed from 2022, will take place in April, and according to the latest forecasts of the institute, salaries may increase for the third time during the next year. “Probably at 4e quarter,” according to experts who are cautious given the uncertainties surrounding the economy.

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