Conjoncture Flash August 2024: Recovery under threat (2024)

The number of passengers transported by air plummeted during the pandemic, but has since gradually recovered. In Luxembourg, numbers returned to their pre-pandemic level in 2022 and exceeded this level in 2023 (+10% compared to 2019), unlike in neighbouring countries where passenger numbers remain below pre-pandemic figures (-18% in Germany, -9% in Belgium and -5% in France). Despite a slight dip at the turn of 2023 and 2024, the number of passengers registered in Luxembourg has since resumed an upward trajectory (with an increase of around 8% over one year in the first seven months of 2024) and should exceed the 5 million mark this year (which would represent a doubling in the space of 10 years).

In the freight sector, Luxembourg benefited from a relatively high level of activity during the pandemic (especially compared with France and Germany), but this declined sharply in 2022 and more or less stabilised in 2023. At the start of 2024, Luxembourg's air freight traffic was back on a slight upward trend, recording an increase of around 3% on the previous year (over the first seven months).

Over the first half of 2024 as a whole, passenger car sales rose by 4% year-on-year in the eurozone. The results vary from one Member State to another, with sales particularly buoyant (year-on-year) in Germany, Austria and the southern European countries. However, sales are in decline in the Netherlands, Belgium, Finland and Luxembourg (where they are down by around 5% compared with the first half of 2023). On the basis of seasonally adjusted data - see graph opposite - a peak appears to have been reached at the end of 2023 (although well below the levels seen before the pandemic) and has since given way to a decline.

In the commercial vehicle sector, Luxembourg registrations also lagged well behind the European trend in the first half of the year: -30% year-on-year for vans (compared with +15% in the EU), -40% for trucks (+3% in the EU). Only bus registrations bucked the trend (+42% in Luxembourg compared with +30% in the EU).

According to the bank lending survey, net demand for housing loans in Luxembourg has increased over the last two quarters, after almost three years of decline. At the same time, the proportion of applications rejected is falling. In the eurozone, banks have also reported an upturn in applications and, as in the Grand Duchy, they expect this trend to continue in Q3.

The amount of loans granted for residential property in Luxembourg rose by 9% year-on-year in Q2. This increase is entirely attributable to mortgages to non-developers, which grew strongly, while mortgages to developers collapsed in the first half of 2024 (the latter generally represent a minor share of all residential lending). Seasonally adjusted data indicates that the low point for mortgages granted to non-developers was reached in Q4 2023, and that it has been rising ever since. This echoes the rebound observed in property transactions over the same period (see Conjoncture Flash of July).

Equity markets were extremely volatile, with a massive sell-off in the wake of the monetary policy meetings of the US Federal Reserve (Fed) and the Bank of Japan on 31 July. Three days later, the Japanese stock market index fell by 20%, while the benchmark American and European indices lost 6%. The fear index (VIX) reached a peak not seen since the pandemic.

These corrections are the result of two main factors: the Bank of Japan's surprise rate hike and the publication of disappointing US employment data, which heightened fears of recession against a backdrop high interest rates. The downturn was amplified by the yen's sharp appreciation (linked to the rise in key interest rates), which led to the unwinding of carry trades (in which investors had borrowed in yen to invest in higher-yielding foreign assets). The Euro Stoxx was also caught up in the turmoil, having already lost ground since June due to political tensions in France (the European index is made up of 40% French companies).

However, valuations are recovering in all regions and sectors, supported overall by growth in corporate earnings.

Tobacco prices have risen sharply in some eurozone countries in recent months. At 38%, the Netherlands recorded the biggest year-on-year rise in July, followed by Belgium (+22%), Latvia (+13%) and Luxembourg (+9.5%). This trend is mainly due to higher tobacco taxes in these countries. Excluding taxes, growth would have been between 2.5% and 6.0% in these four countries. In Luxembourg, as in France (+8.5%), the trend in tobacco prices over the last twelve months remains close to the European average (+8.3%).

However, the price of a packet of cigarettes remains much higher in France and Belgium (at around EUR 12 for a standard packet of 20 cigarettes, compared with EUR 9 in the Netherlands and EUR 8 in Germany), while prices remain comparatively very low in Luxembourg (EUR 6). The price gap with neighbouring countries, especially France, has widened considerably over the last seven years. This trend has a positive impact on Luxembourg's public revenues, via the excise duties levied on tobacco, which doubled between 2017 and 2023 (moreover, they have exceeded duties levied on road fuels since 2022), thanks in particular to sales to non-residents.

The loss of employment momentum has varied since the start of the year depending on the country in which employees live. The number of cross-border workers from France and Luxembourg continues to rise, but at a slower rate, while the number of cross-border workers from Germany and Belgium has fallen (by -0.5 and -0.2% respectively between the end of 2023 and May 2024). Last year, the extent of the slowdown among cross-border workers (+2.2% after +4.0% in 2022) was more marked than that observed for residents (+1.7% after +2.6%), as cross-border employment reacts more strongly to cyclical fluctuations - and in this case to the fall in GDP in 2023. But the relative attractiveness of Luxembourg also depends on working conditions (gross salaries and taxation, access to teleworking, commuting times, etc.). In 2023, growth among French cross-border workers (+3.2%) remained slightly below its average for the last decade, while the rate of increase for German and Belgian nationals has more than halved (to just over 1%). Cross-border workers remain slightly dominant in the new jobs created last year (51%).

According to the preliminary data available up to July, there has been a slight recovery in cross-border employment (the trend is less clear for residents).

Compared with the energy crisis in 2022, oil and gas prices have been relatively stable since mid-2023, despite persistent geopolitical tensions in Ukraine and the Middle East.

Gas prices have not risen above the 40 EUR/MWh mark in 2024, and appear to be less affected by events in Russia and Ukraine. However, it should be pointed out that the EU has significantly reduced its consumption (by 14% in 2022 and 8% and 2023) and has diversified its sources of gas supply. As a result, Europe has been able to reduce its imports of Russian gas by more than 70% compared with 2021. Storage facilities are well supplied as autumn approaches, with a fill level reaching almost 90%.

The price of oil has remained confined to a range of USD 70 to 90 per barrel, despite the unrest in the Middle East and OPEC+'s attempts to reduce production in order to boost prices. This fall in OPEC+ supply was more than offset by production increases in the United States, Canada, Brazil and Guyana.

• Conjoncture Flash August 2024: Recovery under threat