Recession ‘a window of opportunity for Luxembourg’ & More Trending News

 

Could Luxembourg be heading in the direction of a recession within the coming 12 months? “The short is yes–a recession is likely in Europe and consequently in Luxembourg,” says Koulovatianos, a professor on the University of Luxembourg who’s skilled in macroeconomics.

Although the OECD and the European Commission in November 2022 forecasted a slowdown in GDP progress to +1.5% for 2023 for the grand duchy, the recession will hit neighbouring international locations like Germany (-0.6% in 2023). This in itself will already affect the nation, however the different concern, based on Koulovatioanos is that “the economic situation cannot be studied by the models [we have]. We don’t have models to study stagflation.”

Back to 1979

Existing forecasts are unreliable, says the professor, as “this is a recession related to a regime switch. We have to redefine the energy sources and policies of Europe. It affects every sector–private or public.” Next 12 months’s situation shall be extra just like the European and world recession that happened between 1979 and 1985, relatively than more moderen instances, estimates the professor.

“In this regime switch of stagflation, we will have on top of everything, high inflation, high unemployment and high interest rates. The latter could cause trouble for Luxembourg because Luxembourg specialises in the financial industry, and some of these rises in interest rates can push non-performing loans of other countries, the riskiness of other investments, risks of bankruptcies in other countries,” explains Koulovatianos. For him, the housing bubble might additionally pop, including extra gas to the hearth.  

An opportunity for Luxembourg

Whether the grand duchy will be capable to mitigate the affect of surrounding international locations’ financial state of affairs will rely upon its subsequent steps. “There is no easy solution,” however on the center and long run, “Luxembourg can have a window of opportunity: it should convince that in the regime switch in energy policies in Europe, it will play a leading role in sustainable finance through the sustainable finance market and in becoming the financial centre for green investments.”

Investors in different international locations are seemingly going to be pissed off with the financial state of affairs and shall be seeking to spend money on a protected place to take a position their cash. “Let Luxembourg be that place.”

Staying alert on the brief time period

For 2023, although, expectations for sustainable investments needs to be stored low, based on Koulovatianos. The nation ought to as a substitute “try to protect itself from risk by siding with other EU countries in trying to put a cap on energy prices” to assist cut back inflation with out “creating dangerous rates”. It also needs to stay alert to the rise of populism, witnessed through the 1979 disaster and, in current occasions, in international locations like France and Italy, and work on a plan to change into a key participant as an investor in inexperienced applied sciences and sustainable finance.

On the center and long-term although, “Luxembourg should attract more investments. That’s the only way out.”  Of course, says Koulavatianos, even this stagflation prognostic is to be taken with a pinch of salt, because the battle in Ukraine–when or whether or not it’s going to stop–has a big affect on the EU financial system.

Recession ‘a window of opportunity for Luxembourg’

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Recession ‘a window of opportunity for Luxembourg’

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Recession ‘a window of opportunity for Luxembourg’

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