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From 2019 to 2022, Luxembourg's retail structure changed dramatically. In addition to the increase in the number of some businesses and the reduction of others, new types of commercial activity began to form and develop.

) shops demonstrated a big growth: restaurant numbers have grown by 26.4%, and the shops for in-house hobbies — by 22.3%. Grocery stores are slightly behind — they grew only by 11.8%.

At the same time, the number of fashion boutiques, perfume shops, and meat stores has decreased. Although in the case of perfumery retail, we can clearly see the consolidation process of business. The number of outlets has decreased, but the retail spaces have increased.

Alternative retailers are also growing fast. The number of second-hand shops has increased by 42.9%, as well as online stores — by 40%.

Paperjam

The number of fast food restaurants increased by 26%

European central banks have raised their key rates several times in 2022. For example, ECB raised rates by 300 basis points during the year, something that had never happened before. Of course, higher rates caused people to be less willing to borrow money. However, there is a flip side to this.

Luxembourg banks are no exception to the general trend

. Higher interest rates have indeed discouraged some customers. However, the number of applications that came in during the year was enough to increase the interest margin.

Thus, according to the Statec report, almost all the banks in the Grand Duchy noticed a drop in demand for financial services. However, interest margins still increased by 37%. In 2023 they are expected to grow by 26%, with the added value of banks raised by 16%.

Delano

Luxembourg banks benefit from high interest rates

The latest forecast of the National Statistics Agency is much more optimistic than the February forecast of last year. Two factors contributed to this: a good performance of the financial sector and a rather mild winter.

Statec forecasts a slowdown in economic activity in 2023, with Luxembourg's GDP growth of 2.2%

. The next year, 2024, there will be a sharp GDP increase of 3.2% followed by a smooth stabilization at 2.9% from 2025 to 2027.

Unemployment will rise by several percentage points from 5% in 2023 to 5.6% in 2027. That will be caused by the reduction of economic activity and the withdrawal of state support. Now the same process applies to the construction sector, which was significantly damaged last year.

Inflation, on the other hand, will normalize. However, the process will not be quick, and the earliest noticeable changes will happen only by 2025. The inflation rate will be completely stabilized only by 2027 and will amount to 1.6% in annual terms.

Inflation will normalize: Statec forecast till 2027

Despite popular belief, the city of Luxembourg is not at all a record-breaker for housing costs. The reason for this is due to the fact that the rented space is on average less for this area.

The top place for pricing is held by the municipality to the east of the capital – Sandweiler. The average rent price here is 1891 euros, while in Luxembourg the amount is "only" 1539 euros.

The current shortage in the housing market

 is expected to slow down the growth of rent prices. This way the prices increase is humbled by the quality of available apartments. Under such conditions, landlords may turn their eyes to another form of earning money in the real estate market – coliving.

One more popular rent form is parking spaces renting, which are also in high demand, especially in the metropolitan area. The price for a single parking space can be up to 450 euros per month.

The most expensive area for rent: it is not the capital

In January the inflation score was lower than in December 2022: 4.8% compared to 5.4%, respectively. This was mainly due to large discounts for goods during holiday sales.

The main reductions were in clothing and footwear

: on average, they lost 11.5% of their prices. Slightly less noticeable changes in the sector of home appliances and electronics. However, prices will soon return to normal.

On the other hand, grocery prices have beaten the record of 1995. The average increase was 1.9%. Fresh fish (+11.0%), butter (+4.3%), fresh vegetables (+3.0%), fresh fruit (+2.2%), and meats (+1.2%) were the most expensive to buy.

Inflation was also influenced in the short term by the change in VAT rates. Almost all of the VAT rates have lost 1%.

Chronicle

Inflation has dropped to 4.8% in January

Wage indexation, with its first stage today, is widely discussed in all parts of society. The fact that the next indexation will happen in only two months, particularly in April, is highly inspiring. Nevertheless, after the April indexation, the earnings of Luxembourgers may in fact decrease, in spite of the rates of growth.

program for electricity bill benefits ends in April

. As a result, low- and middle-income employees will be the most affected. And the cancelation will most likely even negate almost all of the advantages of indexation.

 executives and high-paid people would feel the most comfortable

, since their discounts were already the lowest. However, they will still have to provide their employees with the very same 2.5 percent increase.

Will the real income fall after the second indexation?

Union labor organizations are unhappy because, according to them, the result of the recent indexation provides an unfair correlation of indexation figures to the actual increase in wages. For example, such raises sometimes move people into the higher tax class.

Nora Beck, the president of the OGBL union, notes, that the increase in wages for workers with an income of 5000 euros a month will only demonstrate 1.7% in real life, not 2.5%. Moreover, this category of tax residents has witnessed a tax payment increase of 21.8% over the last six years.

The tax law does not take into account rapid inflation. And now labor unions intend to continue their fight for a law reformation, 36-hour working week at the same wages, and providing other measures of support for the employed population of the country.

Unions demand full tax reform

In January, the annual inflation rate reached 4.8%, exceeding the established limit. Therefore, the law on the indexation of salaries, pensions, and family allowances will apply as early as tomorrow, February 1, increasing payments by 2.5%.

For people with different income levels, the increase will range from 60 euros to more than 200 euros per month. Moreover, following February's indexation, the next increase will happen soon.

Another income indexation is expected in Luxembourg in April

. Though it has been postponed from 2022 by a three-party agreement. If inflation remains at the current level, the government, labor unions, and employers will have another meeting to discuss further steps for balancing the situation.

L'Essentiel

First wages and allowances indexation will take place on February 1

At the end of 2021, there were 459,864 employees in the Grand Duchy, according to official statistics. Some 135,519 of them worked either in the financial sector or in a related industry.

Banks provided the largest share of positions, 51.8% of all jobs. They are followed by funds (30.8%), insurance companies (13.2%), consulting, audit, and legal services (4.2%).

The importance of the financial sector in Luxembourg can hardly be overestimated. 

First of all, it produces up to 26% of the country's GDP

. Billions of euros of surplus and taxes enrich the economy each year. In addition, it is one of the most reliable and stable employers and has proven itself over a long period of time.

There are also social benefits. Most of Luxembourg's financial companies are international. This facilitates the exchange of cultural to gastronomic experiences.

Every third employee in Luxembourg works in the financial sector

In the second half of 2022, construction prices have increased by 6.8%. The growth has slowed down a little for the last six months. However, the total yearly growth summed up to 15.9%. The country hasn't seen such numbers since 1975. The main expenses, as expected, turned out to be raw materials and energy.

Frame construction works, which account for around 37% of the total construction cost, have already risen in price by 14.9%

. Prices for masonry construction materials have noticeably grown, for example, for cement and its substitutes.

However, the biggest hop happened for the finishing stage materials prices. Glazing, cladding, and gates and fence construction became 18.6% more expensive.

Such changes are almost guaranteed to affect the future value of housing, therefore, rents will also go up. It is hard to presume the results of such changes now. Houses that will be affected by the price increase will only be rented in the future.

Construction cost growth beats the previous record of 1975

Startups in Luxembourg are exposed to risk at the moment they are founded. Statistically, 8-9 companies out of 10 do not pass the 3 years threshold. And furthermore, most likely, their founders will not be able to start a new business.

The problem is complex and largely rests in the reform of the foundation law, which was discussed for about 20 years, but has not yet been resolved. Add forced circumstances, pandemics, fires, and floods to the formula and you will get a recipe for the failure of almost any small business.



. The system is not transparent and is difficult to manage. And this can play a cruel joke on aspiring entrepreneurs.

Also, we should not forget

 about the restrictive nature of current law

. Now the decision about the fate of the startup and the founder is in the hands of the Ministry of Economy. On the one hand, the verification of the founder is important, because it helps to protect its future partners. On the other hand, the decision to give a second chance at the business should be left in the hands of the judicial system.

If the failure of the company is not caused by a crime, the entrepreneur should be able to try again. This is what Luxembourg Startup Association (LSA) says.

Whether the long-awaited law will be considered before the summer elections is not yet clear. But it will clearly still remain on the agenda because of its importance and relevance.

9 of 10 startups do not last more than 3 years in Luxembourg

Bakery chain owners, Michel and Muriel Dudo, say that their annual electricity costs had tripled from 42,000 euros to 130,000. Such sharp rise happens due to an increase in the cost of electricity while the bakery operates the same schedule of work.

 was the rise of raw materials' prices. Over the last year, the price for butter has increased by 30%, sugar and milk prices – by 100%. There also has been an indexation of wages and all 64 employees have to be paid more now.

, some businesses have already switched to midnight work. This considers to be a huge step back in terms of social security, but it is the only way they can stay afloat.

Le Quotidien

Moselle's bakeries can't handle the energy crisis

The main change that will affect all companies without exception is the reduction of VAT rates by 1%. This will not affect the ultra-low tax tariff of 3%. All other rates will be reduced to 16%, 13% and 7% respectively. This measure will last until December 31, 2023 and will be mandatory for everyone.

The second important aspect of the coming year will be a 3.2% increase in the minimum wage. For skilled workers, the new rate will be €2864.88 per month. For those unqualified - 2387.40 euros.

Also, the results of this year's tripartite meeting laid the foundation for two wage indexations by 2.5% each. However, experts believe that there may very well be three indexations in 2023. One at the start of the year, another one in the spring and the last one closer to the end of the year.

Big changes await Luxembourg's companies in 2023

Incert works in the field of digital security and is part of the EWC company group. The European Union has chosen this group as the contractor for large-scale pilot projects for the introduction of electronic wallets.

Such wallets in the EU will not only store the citizens' money. EWC and Incert will be testing dozens of use cases: booking train and plane tickets, as well as hotel rooms, check-ins at the same hotels and other institutions, verification of the carrier's identity, purchases, payments, and much more.

In the future, such a wallet will become a universal document and a tool with which the carrier will be able to perform the vast majority of operations related to money and paperwork. Naturally, the security of such an important device (or application, the final form of the wallet is not yet clear) should be at the highest level. That's where Incert comes in.

Another Luxembourg company, Netcompany-Intrasoft, is already involved in creating the wallet. It, together with Scytáles, received 26 million euros to create the infrastructure for this innovation.

Luxembourg-based company Incert participates in the European digital wallet project

From December 13, 2022, the updated rules for issuing electronic invoices are in effect. In order to help organizations to quickly get used to the procedure and carry it out correctly, an information portal e-facturation.lu has been developed.

 was created and launched by the Ministry of Digitalization, the Chamber of Commerce and their partners. It contains links to all thematic documents and instructions, as well as answers to the most frequently asked questions. In the future, it is planned to use the platform for seminars and training sessions.

Gouvernement.lu

There's now a guide for electronic invoices

. From last October to this growth was 11% (excluding alcohol prices).

From September to October, prices rose by 1.7%. This is a record of the last 15 years — since October 2007. Fresh vegetables (+5%), bread and cereals (+2.7%), and dairy products (+1.9%) went up in price the most.

The records of the year are as follows: dairy products (including eggs) became more expensive by 13%, vegetables — by 13%, meat by 12%, bread and cereals by 12%.

STATEC suggests that prices may slow down in 2023. The trend is already set. Frozen seafood (-5.3%) and olive oil (-1.6%) fell in price in October compared to September.

It should be noted that, on average, in the Eurozone, food prices rise faster than in the Grand Duchy. Growth for the year reaches a record 15%. Food accounts for almost a quarter of EU-wide inflation, which is 11%. This is a significant increase compared to March 2022. Back then, food accounted for only a tenth of inflation.

As food becomes more expensive, the Luxembourg Consumer Protection Association (ULC) has criticized the retention of VAT on food. The Solidarity Package 2.0, signed at the beginning of October, covers only the regular rate (17%), the intermediate rate (14%) and the reduced rate (8%). 

The ultra-low rate (3%), which products are taxed with, will remain the same.

However, VAT reduction is not very effective against inflation. The budget will spend 317 million euros on it, or almost 500 euros per capita. And most buyers will not even notice the difference — significant amounts can only be saved on large purchases.

Niko Hoffmann, president of ULC, argues that VAT cuts don’t have to be visible to help. And Niko suggests helping people with low and middle incomes in a different way: adapt tax scales to inflation or carry out a tax reform.

Measures taken by the tripartite commission should boost real household income and private consumption by almost 1.5% in 2023, according to Statec. Whether it will work or not is too early to guess, the situation is too unpredictable.

Food prices are rising

State support for medium-energy-intensive businesses 

 in response to the growing crisis in the fuel industry. We are talking about companies whose energy costs are at least 2% of turnover. You can apply for help if fuel costs reach 80% of the average unit costs.

Applications for financial assistance are submitted online via MyGuichet.lu or in a mobile app. You need to fill out the form for each reporting month separately:

no later than March 31, 2023 for October, November and December 2022.;

no later than September 30, 2023 for January, February, March, April, May and June 2023.

The amount of financial assistance cannot exceed 70% of the total energy expenditure. However, there is still a limit of 500 000 euros for the reporting period.

Guichet

New support for medium-energy-intensive businesses

On November 25, the Board of Governors of the European Stability Mechanism (ESM) unanimously 

 former Luxembourg Minister of Finance Pierre Gramegna as Managing Director.

Pierre will take office on December 1. He will replace interim director Christophe Frankel. Christophe has been in office since October, when Klaus Regling, ESM’s first Managing Director, served his term.

ESM is an intergovernmental organization headquartered in Luxembourg. The Eurozone countries created the ESM in 2012. The mechanism should help the eurozone overcome financial crises. Its credit potential is 500 billion euros.

Former Luxembourg Minister of Finance appointed head of European Stability Mechanism

Most companies weathered the covid epidemic well and started recovering already. 84% generally believe that their turnover will return to pre-Covid levels. But the new crisis instills pessimism in them. A study by the European Investment Bank demonstrates an alarming trend.

The energy crisis and war are hitting the expectations of many businesses hard

. The global slowdown in economic development also adds to the general feeling of uncertainty. So, in general the economic expectations of companies turn negative again: they dropped from +27% to -53%. Perception of business prospects decreased from +34% to +3%.

Indeed, recently Luxembourg businessmen have stated in a survey that current problems are numerous, and hopes for the future seem few and far between

Oddly enough, in such a situation, companies continue to think about ecology and innovation. How correct and far-sighted this is — only time will tell.

European companies are in no hurry to invest

At least, the leadership of Croatia believes so. 

The country is determined to join the eurozone. 

The state assumes that an economic storm is imminent. And with a unified currency, it would be easier to weather the coming inflation and possible recession.

This position is consistent with the facts. The inflation rate in Croatia in September was 13% compared to last September. This is more than in the eurozone.

In addition, Croatia’s main economic ties are those with the eurozone countries. The country receives a large portion of its income — 20% of its GPD — from tourism. Vacationers come to Croatia mainly from Europe. Even the local residents use euros to evaluate their property more often than they use national currency — kunas.

Croatia will switch to the euro starting from the new year. Already, price tags in stores have two prices: the price in kunas and in euros.

Other countries that are members of the European Union but not the eurozone are Poland and Hungary. They have not yet made statements about the transition to the euro. But they probably think about it.

Recall that inflation in Europe this October increased by 10.7% compared to last October. 

For the European Union, this is a record annual inflation hike.

 Moreover, the GDP of the Eurozone in October rose by 0.2%. In the second quarter, it grew by 0.8%. It’s not a recession yet, but the economic downturn is apparent in the current quarter.

lequotidien.lu

Transition to the euro offers protection against inflation, energy crisis and geopolitical instability

To be precise, Luxembourg exported goods worth 124 million euros to Canada last year. This is not to say that this is an unexpected boom: the volume has been growing for the past four years.

This is the data for 2021. It was provided by the Minister for Foreign and European Affairs of Luxembourg, Jean Asselborn.

Exports to and imports from Canada are assisted by the Comprehensive Economic and Trade Agreement (CETA). It came into force just five years ago. The agreement simplifies trade and cooperation between the EU countries and Canada.