Luxembourg: Slowest GDP growth since Q4 2023 in Q3
Economy decelerates, falling short of market expectations: GDP growth slowed to 0.2% on a seasonally adjusted quarter-on-quarter basis in Q3 from 0.6% in the second quarter, marking the slowest expansion since Q4 2023. The moderation fell short of market expectations of stronger growth compared to Q2. On an annual basis, economic activity rose 1.1% in Q3, compared to the previous period’s flat reading and marking the best result since Q3 2022.
Public spending and net exports drive moderation: Domestically, government spending growth was the slowest since Q1 2023, expanding 0.8% (Q2: +1.4% qoq s.a.). On the flipside, total investment growth accelerated to 2.7% in Q3, following the 0.7% expansion in Q2. Additionally, household spending growth rose to 1.7% seasonally adjusted quarter-on-quarter in Q3 (Q2: +1.4% qoq s.a.), which marked the best reading since Q4 2023.
On the external front, net trade detracted from the overall reading. Exports of goods and services fell 0.1% on a seasonally adjusted quarterly basis in the third quarter, which contrasted Q2’s 1.3% expansion. Conversely, imports of goods and services growth improved to 0.7% in Q3 (Q2: +0.6% qoq s.a.).
GDP growth to strengthen in 2025: Looking ahead, GDP growth will nearly double in 2025 from 2024’s projection, spurred by stronger expansions in private spending and exports plus a recovery in fixed investment. Crucially, the ECB’s ongoing monetary policy easing cycle will buttress both domestic and EU demand. Downside risks include weaker Euro area demand and souring investor sentiment due to higher U.S. tariffs under President-elect Trump.
Panelist insight: EIU analysts said:
“We expect private consumption to remain robust in the next several quarters, driving an acceleration in real GDP growth to 2.3% in 2025 from an estimated 1% in 2024 as inflation stays low. Furthermore, the affordability of mortgages and other loans should improve, as we see the European Central Bank (ECB) cutting interest rates further amid evidence of easing inflationary pressures in the euro zone.”