The Luxembourg Chamber of Commerce has published the third edition of its Economy Barometer, which is published every six months and assesses the economic climate and highlights the principal concerns of businesses in Luxembourg.

For the first quarter of 2020, the barometer revealed that more than one in two companies have seen their activity decline in the past six months and that seven in ten business leaders believe that the COVID-19 crisis will negatively affect their turnover in 2020. Nevertheless, the barometer showed that managers as a whole retain a certain confidence in the future of their company and the Luxembourg economy. They also anticipate for the most part to maintain their workforce, despite the economic slowdown. 

Carried out from 3 to 16 June 2020 among 431 companies with six or more employees, this third survey reflects the state of the economic fabric at the time of deconfinement. The synthetic score of the economy barometer, corresponding to the average of seven economic indicators relating to the activity of the last six and the next six months, employment, profitability, investments and confidence in the future of business and the economy fell sharply, from 61.9 / 100 in the previous survey to 45.6 / 100 this time.

Global decline in activity

According to the barometer, all industries except financial services have seen their activity decline in the past six months, with HORECA, industry and construction being the hardest hit sectors. During confinement, almost eight out of ten companies saw their turnover decrease, including more than 40% with a drop of more than half of their usual activity. At the start of June, business losses were on average 63% for HORECA companies, 42% for the services sector (excluding finance), 39% in transport and 35% in trade. 

Over the whole of 2020, seven out of ten business leaders estimated that the crisis would affect their turnover, for an average drop of around 29%. This rose to 90% in the HORECA sector, 75% in industry and 72% in trade. Hotels, restaurants and cafes expect their turnover to fall by 50% over the whole year, as the crisis did not end with the deconfinement. The economic situation will differ for the next six months depending on the sector, said the Chamber.

The slowdown has had a great impact on the level of liquidity of companies. More than six in ten companies have suffered liquidity losses since the start of the crisis. On average, business executives saw their cash flow reduced by 33% or 36% for businesses with between six and nine employees. More than one in five HORECA companies have lost more than 80% of their cash flow. This was also the case for 12% of transport companies and 8% of shops. 

Thus, 43% of business leaders expect their profitability to decrease in the next half compared to last year, against only 14% who expect an increase. This decline is weighing on corporate investment projects. Only 16% of business leaders plan to invest more in the second half of 2020 than in the second half of 2019 and 32% plan to decrease their investments. 

Business leaders continue to believe in the future

Despite everything, a first positive sign, showing a certain optimism among leaders for the future of their company, is their will to retain jobs in spite of the crisis and the economic difficulties. Two out of three business leaders expect job stability and 13% more workers over the next six months. In the end, only one in five companies believes that its workforce will be lower in the second half of 2020 compared to 2019. The construction sector is, along with financial services, the one that estimates creating the most jobs, in a context of needs housing and infrastructure in the country. However, more than half of the hotels, restaurants and cafes are predicting job losses.

The other relative good news is that 11% of business leaders remain very confident and 66% remain confident in the future of their business in the medium term. Confidence has nonetheless deteriorated compared to six months ago, with entrepreneurs with little confidence in the future of their business increasing from 12% to 20%. 

Confidence in the future of the Luxembourg economy also remains high, although, in six months, the percentage of entrepreneurs with little or no confidence rose from 11% to 21% whilst that of very confident managers dropped from 13% to 9%.

Summer will not see the end of the difficulties

Businesses encountered many difficulties during confinement and upon resumption of activity. The HORECA and transport sectors have to cope with the lack of demand from customers, while sanitary conditions significantly complicate the organisation of work for construction companies. Companies with six to nine employees are more affected by the lack of liquidity. Additional measures linked to social distancing represent on average 8% of total business expenditure.

Another difficulty relates to the impossibility for staff to work under the usual conditions. At the beginning of June, only 56% had resumed their routines, in a context where teleworking and partial unemployment could still form part of the daily life of many employees for the coming months. 45% of the workforce of HORECA companies and 22% of jobs in the industrial sector were still partially unemployed during the first half of June. Teleworking remained very important for the workforce of finance companies (46%) and non-financial services (31%).

In addition, 8% of companies felt that they did not have the liquidity necessary to maintain or restart their activity, with 25% stressing that the loss of liquidity has forced them to operate in slow motion. This is particularly the case in HORECA, industry and construction sectors. Only 35% of businesses indicated that they have the cash to revive their activity and carry out the projects planned for 2020. 

To cope with these difficulties, companies have made extensive use of government aid. Almost seven out of ten companies made use of the family leave and partial unemployment measures. The other most used measures were those linked to taxes and social security contributions. More than one in five businesses have received non-repayable direct assistance. The sectors most concerned by the former were HORECA (56%), construction (32%), trade (21%) and non-financial services (15%). The two measures which most often appeared to be insufficient in their scope were the stimulus and solidarity fund and the new structural partial unemployment scheme. Businesses mostly advocated an extension and increased flexibility of partial unemployment, the establishment of new non-refundable direct aid and consumer support measures. Partial unemployment remained a top priority for industry, HORECA and commerce.

Companies in favour of strong measures to revive the economy

The recovery will be the main economic subject for the second half of 2020 and for 2021, according to the barometer. Companies have great expectations in this area, demanding strong measures. Lowering taxes was an absolute priority for 37% of companies. The figures were similar for the reduction of social security contributions. Incentives for household consumption, such as lowering VAT, were advocated by the HORECA and trade sectors, but also by industry, construction and non-financial services. 43% of industrial companies made supporting private investments a top priority. Other measures proposed by the Chamber of Commerce, such as large-scale public investments, new mechanisms for the digital transformation of public services and a ramp-up of R&D policies, have also obtained the support of business leaders.

The economic barometer for the first quarter of 2020 can be read in full at