The Luxembourg economy has been hit hard by the COVID-19 pandemic, although the impact is more limited compared to other European economies. However, the unemployment rate rose, business and consumer confidence declined, and business expectations have been lowered. The second wave of the pandemic has also hit the economy with a long closure of non-essential shops (only reopened as from 11 January 2021) while cafés and restaurants will remain closed until March 2021.
After low activity levels observed on the office market in Q2, activity is now picking up again with notable deals in the pipeline, both on the investment and occupier market. On the retail market, rents are under pressure, though expected to remain relatively stable after having experienced declines in 2020 in the high streets segment as activity and footfall were below average levels. However, on the investment market, appetite remains high for the best assets as there is plenty of liquidity on the market.
To achieve a well-sequenced lifting of the lockdown restrictions and limit the impact of the second wave of COVID-19 infections, the Government announced a large-scale fiscal package to mitigate the consequences of the virus outbreak.
Luxembourg’s economy will contract sharply this year as a consequence of the COVID-19 crisis. The combined supply, demand and financial shock of the crisis means GDP is expected to contract by 6.2% in 2020, before growing almost 10% in 2021. Risks remain to the downside, linked to the effectiveness of the containment measures and the long-term consequences of disruption to the economy.
After low activity levels seen in the office market in Q2, activity is now picking up again with notable deals in the pipeline, both in the investment and occupier markets.
In the retail market, rents are under pressure and experienced new declines in Q3 in the high street sector as activity and footfall remains below average levels. However, on the investment market, appetite remains high for the best assets as there is plenty of liquidity in the market. In response to the outbreak, the Government has taken a wide range of health and containment measures to curb the spread of the virus and protect vulnerable groups.
Furthermore, the Government adopted a large fiscal stimulus package to bolster the resources for the health system and help maintain businesses and jobs. The measures consist of €2.3 billion in fiscal spending and €8.1 billion of liquidity support. Together with the European aid package announced recently, these measures will mitigate the losses related to coronavirus, supporting workers’ incomes, and providing liquidity for companies.