Chambre de Commerce Calls for 11 Measures to Revive Luxembourg Economy

The health crisis and the COVID-19 pandemic have triggered an unprecedented global socio-economic crisis. At the macroeconomic level, the medium- and long-term effects cannot yet be accurately assessed, but it is already clear that global economies will show sharply declining trends. In its April 2020 projections, the IMF expects world growth to be -3% (compared to +3.3% in its January projections) and significant risks for a downturn. Still, according to the IMF, the GDP may even fall by 4.9% in 2020 in Luxembourg, with even sharper declines among its main trading partners (-7% in Germany, -7.2% in France), which does not bode well for the Grand Duchy's exports.

In the Stability and Growth Pact for 2020, presented this Wednesday 29 April, the new macroeconomic forecasts are marked by the Coronavirus epidemic. The limited confinement scenario forecasts a significant rebound in activity in the third quarter and a return to normal in the second half of 2020, from both a health and economic point of view. According to STATEC, this scenario implies a 6% drop for 2020 growth, but a 7% rebound for 2021. At the same time, a public deficit of €4.9 billion, or 8.5% of the GDP, is announced, due to the measures in favour of partial unemployment, and the planned expenses to counter the health crisis, among other items. In 2021, the government deficit would be €-1.97 billion (3% of the GDP), following ‘the dissipation of the budgetary cost linked to economic stabilisation measures’. Public debt would be 28.7% in 2020 and 29.6% in 2021, while it still peaked at 22% in 2019. To date, the extent of the response provided by the Luxembourg public authorities is valued at €10.4 billion, or 17.5% of GDP (knowing that the entire amount will not be disbursed). Employment growth would be just 0.7% in 2020 and 1% in 2021, compared to + 3.6% in 2019.

In order to limit the probability of the occurrence of a ‘second wave’ of contaminations, requiring a backward step and a new confinement that would have disastrous economic consequences, as the STATEC scenario shows, the Chambre de Commerce recommends the use of epidemiological models to monitor the health situation and maintain telework where it makes sense.

In the Grand Duchy, financial aid for firms in temporary financial difficulty provides repayable advances of up to €500,000. A ‘force majeure/coronavirus’ partial unemployment scheme with an accelerated procedure for all businesses that have had to cease their activities, completely or partially, has been introduced, as well as leave of absence for family reasons, while a state guarantee scheme for up to 85% of new bank loans has recently been approved.

Emergency financial aid for VSEs and SMEs has been allocated in the form of immediate and non-refundable financial assistance of €5,000 for companies with up to 9 employees and €12,500 for companies with 10 to 20 employees. The self-employed were allocated a direct non-refundable grant of €2,500.

If the first measures presented by the government made it possible to support businesses during the month of April, many of them must therefore also be supported in the weeks and months to come, depending on the duration and impact of the socio-economic crisis.