Real GDP Growth Expected to Slow from 3% to 2% according to STATEC

On Thursday, the national statistical agency STATEC published its medium-term projections for the Luxembourgish and euro area economies.

The central scenario included a gradual slowdown in Luxembourg's economic growth from a high cycle observed in 2018/19. Real GDP growth would slow from around 3% to around 2% by 2024, with employment converging to 1.5%. The projection was accompanied by two risk scenarios, one upward, the other downward, the latter possibly being linked to a severe economic crisis linked to the coronavirus epidemic.

The euro area economy has been slowing down since 2017, when real GDP growth peaked at 2.5%. STATEC, based on Oxford Economics projections, has reported that it expects the economy to reach a low point of 0.8% in 2020. By 2021, it would rebound to reach its long-term potential at around 1.25% per year. A small part of this revision (down to 0.8%) has stemmed from the very recent turbulence linked to the coronavirus epidemic. According to Oxford Economics (estimate as of 15 February 2020), the economic consequences of the epidemic should dampen growth in the euro area by around 0.1% (but much more in China and other Asian countries). The growth figure for euro area GDP used by Oxford Economics for 2020 (+0.8%) is identical to that published by the OECD on 2 March 2020, according to STATEC.

The most recent developments, however, suggest a greater negative impact on activity. For projections beyond 2021, the coronavirus epidemic is expected to have very little impact.