Labour market on the right track Employment and unemployment in Luxembourg 8 Domestic paid employment picked up in late 2016, up 3.3% over one year in the 4th quarter. Unemployment benefited from this 7 momentum and continued to fall, dropping to 6.0% of the working 6 population in April 2017, up from 6.2% at the turn of the year. All sectors are benefiting from the recovery and job vacancies remain 5 at historically high levels. 4 Job creations continue to soar 3 In the last quarter of 2016, growth in domestic paid employment 2 rose to +0.9% over one quarter (+3.3% over one year), after a 1 slightly slower pace over the previous four quarters, bringing aver- age annual growth to 3.1% in 2016, after 2.6% in 2015. The Grand 0 Duchy is thus ranked second in the euro zone (behind Malta),

among the most dynamic countries in the euro area. Growth in

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Luxembourg employment is therefore back at its long-term average Jan-07 (+3.3% per annum from 1986 to 2016). Unemployment rate, as a % of the working population Domestic paid employment, annual variation in % In 2016, the most dynamic sectors were real estate (+7.3%), busi- ness services (+6.6%), agriculture (+5.2%) and ICT (+3.5%). The Sources: STATEC, IGSS, ADEM most significant contributions, however, were in sectors that play a larger role in the Luxembourg economy. Thus, business services Unemployment continues to fall accounted for one third of jobs created in 2016 (especially in terms The drop in unemployment in Luxembourg since mid-2014 is con- of accounting activities and temporary employment), followed by tinuing at a regular pace. The unemployment rate thus stood at construction, the financial sector and trade. 6.0% in April 2017, after peaking at 7.2% in Q2 2014. However, it Vacancy rates remain particularly high in administrative and sup- remains well above the level of before the financial crisis in 2008- port services, specialist, scientific and technical services, hotel and 2009. catering and ICT. The extent of the drop is similar when people in job schemes are The figures available for early 2017 show that the employment taken into account. The rate here went from 9.1% of the working market is continuing to hold up well. The figures for temporary population in Q3 2014 to 7.9% in April 2017. The decline in unem- employment provided by FES members (Fedil Employment Ser- ployment is thus based on real economic momentum (rather than vices) indicate a strengthening at the end of the 1st quarter (+15.5% an increased number of subsidised jobs). over one year in March in terms of hours worked against +5.2% in This drop in unemployment is part of a trend that is visible across February and +8.8% in January). The economic surveys point in the Europe. The unemployment rate across the euro zone stood at same direction, with companies revising their employment pro- 9.5% of the working population in February 2017, after peaking at spects upward (particularly in the construction sector). Partial un- 12.1% in April 2013. However, it is still too high to generate any employment applications remain historically low. significant tension on consumer prices and wages.

Conjoncture Flash | May 2017

Construction More projects – but smaller

Planning permission by volume The volume of projects granted planning permission in the 4th 3 9 000 quarter of 2016 – expressed in m – fell 17% over one year. Over the past year, the fall was approximately 20%, affecting mainly 3 8 000 non-residential construction projects. It must be noted that in this 7 000 area, 2015 was particularly marked by the approval of several major projects, including one in particular to the south of Luxem- 6 000 bourg City. In contrast, the number of non-residential construction 5 000 projects granted planning permission was higher in 2016 (up 12% 4 000 to 410, against 366 in 2015). 3 000 Planning permission was granted for 1 665 projects (also up 12% over one year), corresponding to 4 750 houses and apartments in 2 000 total (+22%), but representing a built volume of just 2% more than Volume be to built, in 1 000 m 1 000 in 2015. In sum, of all planning permissions granted in 2016, aver- age project size was down about 30%.

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Residential construction Non-residential construction

Source: STATEC Consumption New car registrations lagging behind

New car registrations since 2007 Sales of new private cars were showing signs of weakness in early 110 2017. At the end of April, total new car registrations were stagnant compared to last year (compared to a 4.6% rise in the euro zone). 105 They fell 0.9% over one quarter in Q1 2017 (+3% over one year) 100 and April proved very disappointing: with just 4 860 new car regis- trations (-7% over one year and approximately 300 vehicles less 95 than over the four previous years in the same month), the worst 90 result posted in Luxembourg since 2001. That said, April was a mediocre month for car sales across Europe

2007 2007 Q1 = 100 85 (-5% over one year in the euro zone), a phenomenon that is mostly 80 due – according to car makers – to the fact that Easter was in April this year (it was in March in 2016). Consequently, better results can 75 be expected for May, but this is yet to be confirmed.

70

07Q1 08Q1 09Q1 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 16Q1 17Q1 Luxembourg Zone euro

Sources: ACEA, STATEC (seasonally adjusted figures) Financial sector 1/2 Insurance: more favourable signals

Insurance premium income Premiums collected by Luxembourg insurance companies rose 5% over one year in the 1st quarter of 2017, after falling almost 4% 7.5 over 2016 as a whole. This recovery was largely sustained by unit- 7.0 linked life insurance products (+27% over one year). As their remu- neration is tied to stock market performance, they may be benefit- 6.5 ing from the upswing in equity indices since end-2016. In contrast, premiums for products with a guaranteed return fell sharply (-28% 6.0 over one year in the 1st quarter of 2017).

5.5 Across Europe, confidence among stakeholders in the financial In In EUR bn 5.0 sector has improved substantially since last November, particularly among insurance professionals (see Conjoncture Flash of April 4.5 2017).

4.0 According to data compiled by the IGSS, employment in the Lux- embourg insurance sector rose 4.4% in 2016, a marked improve-

3.5 ment on 2015 performance (just +0.8%).

11Q1 13Q3 16Q1 11Q3 12Q1 12Q3 13Q1 14Q1 14Q3 15Q1 15Q3 16Q3 17Q1

Sources: Commissariat aux Assurances, STATEC (seasonally adjusted data) Conjoncture Flash | May 2017

Financial sector 2/2 Loans: more flexibility for households than for businesses

Loan criteria According to the latest survey on the distribution of bank loans 30 (April 2017), Luxembourg banks have not overall modified their + : tightening lending criteria for businesses, confirming that the easing in credit 20 - : easing terms seen since 2014 until early 2016 is now over. For households, - however, banks seem to be proving more flexible in term of both 10 mortgages and consumer loans, due in particular to competitive pressure from other banks. 0 The institutions surveyed also mentioned a rise in non-interest -10 expenses in terms of conditions applied to loans actually granted (for lending to households and businesses) and an increase in -20 margins for most types of loan. Loan applications for businesses

Balance Balance of+/ responses appear more linked to fixed capital investments, while applications -30 from households seem more driven by consumer spending on

durable goods.

10Q3 11Q1 11Q3 12Q1 12Q3 10Q1 13Q1 13Q3 14Q1 14Q3 15Q1 15Q3 16Q1 16Q3 17Q1 Companies Households - consumer loans Households - housing loans

Source: Macrobond (moving averages over 3 quarters) Public finances Upturn in “oil” excise duties

Excise duties on oil products and pump price differentials After falling for 4 years due to the drop in road fuel sales, excise revenue on oil products is now up almost 5% over one year after 245 -0.24 the first 4 months of the year. While excise receipts stabilised 240 -0.23 somewhat in 2016, the year still ended over 2% down. 235 -0.22 230 -0.21 As a substantial portion of fuel sales is to non-residents, this up- swing could be partly due to different pump price trends between 225 -0.20 Luxembourg and neighbouring countries. Thus, while the decline in 220 -0.19 the Brent price in recent years involved a reduction in this price 215 -0.18 In EUR/liter differential (filling up in Luxembourg became less attractive in 210 -0.17

In In EUR millions terms of savings per litre), the gap has widened recently following 205 -0.16 the upturn in oil prices. On top of this, there were increases in 200 -0.15 excise duties in France and Belgium, mainly in diesel sold to private

individuals.

11Q1 11Q3 12Q1 12Q3 13Q1 13Q3 14Q1 14Q3 15Q1 15Q3 16Q1 16Q3 17Q1 Oil excise duty (seasonally adjusted data)

Average difference of pump prices: Lux. - bordering countries (right-hand scale inversed)

Sources: ADA, Macrobond, STATEC Inflation Oil: temporary upward impact on inflation

Brent price in EUR The considerable rebound in annual inflation – 1.8% over the first 90 90 4 months of 2017 in Luxembourg compared to 0.7% in the final quarter of 2016 – is mainly due to the upswing in oil prices. After 80 70 bottoming out in early 2016 (to almost 30 EUR per barrel), the 70 50 Brent price recovered well throughout 2016. In Luxembourg, a litre of petrol or diesel now costs an extra EUR 15 cents at the pump 60 30 than in February 2016. In terms of the inflation rate, measured as an annual average, this led to a strong base effect at the start of 50 10 2017, which dissipated thereafter.

EUR/barrel 40 -10 Following the reduction in output decided last December by OPEC Annual Annual variation in % 30 -30 countries and Russia, the price of black gold stabilised remarkably at around EUR 50 per barrel. However, in recent months, the 20 -50 upsurge in shale oil extraction in North America and the uncertain-

ties prior to the renewal in May of the commitment made in De-

Jul-15 Jul-16

Jul-14 cember exercised some downward pressure on oil prices.

Oct-16 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Apr-17

Jan-14 Jan-16 Jan-17 Jan-15

Brent in EUR (left-hand scale) Idem, annual variation in % (right-hand scale)

Source: Macrobond Conjoncture Flash | May 2017

International United Kingdom: consumption stumbles

United Kingdom – retail sales (in volume) The British economy posted good results at the end of 2016, with th 120 GDP up 0.7% over one quarter in the 4 quarter. st 118 However, performance in the 1 quarter was more lacklustre, with GDP up just 0.3% (against 0.5% for the euro zone). The correspond- 116 ing GDP components are not yet available, but the UK's Office for 114 National Statistics has said that most of the slowdown is due to service activities (+0.3% against +0.8% in Q4 2016) and that the 112 downturn is particularly affecting retail trade and housing. 110 Retail sales fell almost 2% over the 1st quarter (against +0.3% in the

Index 2010 = Index 100 2010 108 euro zone), as consumers were subjected to sharp price hikes (mostly linked to a rise in imported inflation, itself due to the 106 depreciation in sterling). The inflation differential with the euro 104 zone has also increased considerably recently (+0.8 percentage points in March and April, against just 0.1 in January).

102

Jul-14 Jul-15 Jul-16

Jan-15 Jan-16 Jan-17 Jan-14

Source: Eurostat

Trend chart

Average over the last three Same period Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 months previous year Annual variations in %, except where otherwise indicated Activity Industrial output per working day, in volume -6.0 3.1 -3.7 -7.1 3.9 -6.6 -4.4 … … -2.4 0.9 Construction output per working day, in volume 7.9 1.3 2.1 3.6 11.2 -17.7 -7.1 … … -4.5 4.7 Turnover by volume of total retail trade 1.8 3.0 2.1 2.0 2.6 -1.9 -4.5 … … -1.3 -0.2 Prices, wages Consumer price index (NCPI) 0.2 0.4 0.5 0.5 1.1 1.7 1.8 1.7 1.9 1.8 0.1 Underlying inflation 0.9 0.8 0.7 0.8 1.0 1.2 1.2 1.3 1.4 1.3 1.1 Oil product index -11.8 -6.4 -2.5 -3.6 4.9 13.2 15.2 11.5 14.1 13.6 -16.2 Industrial producer price index 0.0 -0.9 -0.9 -0.7 0.1 0.5 1.6 3.5 … 1.8 -2.2 Construction price index1 1.0 1.0 1.0 1.0 1.0 … … … … 1.0 1.0 Average wage bill, per person (National accounts) 0.5 0.5 -0.3 -0.3 -0.3 … … … … -0.3 1.8 Foreign trade Exports of goods (volume) 9.1 0.4 -8.1 -0.7 4.1 23.2 -2.7 … … 8.2 4.6 Imports of goods (volume) -0.4 -3.9 6.0 3.2 0.1 2.5 -0.1 … … 0.8 -1.7 Employment, unemployment Domestic number of employees 3.1 3.1 3.1 3.4 3.4 3.0 3.5 3.5 3.5 3.4 2.9 National employment 2.3 2.3 2.3 2.5 2.6 2.3 2.8 2.9 2.9 2.7 1.9 Unemployment rate (% of working population, seas. adj.) 6.4 6.3 6.3 6.2 6.2 6.2 6.1 6.0 6.0 6.1 6.5 Source: STATEC Data coloured are estimates 1 Estimations based on half-yearly data Indicators

Variation on previous quarter in % 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 Eurozone- Growth in volume of GDP (European Commission) 0.3 0.4 0.6 0.3 0.4 0.5 Luxembourg - Growth in volume of GDP (STATEC) 0.2 3.0 0.0 1.2 1.0 1.3 Annual variation in % 2012 2013 2014 2015 2016 Forecast 2017 Luxembourg - Growth in volume of GDP (STATEC) -0.4 4.0 5.6 4.0 4.2 4.2 GDP at current prices 2015: EUR 54 195 million st Minimum monthly salary (since 01/01/2017): EUR 1 998.59 Consumer price index (April) - base January 1 1948: 844.28 st Current account balance (2016 Q4): EUR 1 523 million Half-yearly average of the index linked to base as at January 1 1948: 838.19 Resident population (01/01/2017): 590 667 Estimated deadline for next salary indexation: 2nd quater 2018

National Institute of Statistics and Economic studies For further information:

Tel: 247-84219 13, rue Erasme Bastien Larue [email protected] B.P. 304 Tel. 247-84339 www.statistiques.lu L-2013 Luxembourg Email: [email protected] Véronique Sinner Tel. 247-84228 Email: [email protected]

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