Flash May 2018

05/2018 MONTHLY PUBLICATION OF THE STATE OF THE LUXEMBOURG ECONOMY Brexit: Lëtz make it happen In the wake of the Brexit vote, a relatively high number of financial companies have opted to relocate to Luxembourg to maintain ease of access to the European market. STATEC believes that by early 2018, about 250 jobs created were linked to this phenomenon, benefiting the Luxembourg marketplace. The Brexit vote in June 2016 has brought home to City operators the realisation that they are now set to lose the European passport, which allows all banking and financial institutions and management companies to operate throughout the European Union. This has propelled them to relocate some of their operations to financial marketplaces in the EU. Luxembourg attracts companies – and jobs Luxembourg seems to be an attractive option. Over 30 companies, most of them operating in insurance and fund management, have already confirmed their move to the Grand Duchy. This number is relatively high compared to other EU countries (18 to Ireland, 15 to Germany, 10 to France, and 9 to the Netherlands, according to the latest figures compiled by KPMG1). It remains to be seen how this will translate in terms of added value and employment. Of the companies that have confirmed they will be moving to the Grand Duchy, very few have announced how many potential jobs this move will entail. Based on individual company figures, STATEC currently believes that approximately 250 jobs have already been created due to relocations. This is a conservative estimate, because most recent figures available do not go beyond January 2018 and some companies have only just set up (or stepped up) operations in Luxembourg because of Brexit. It should also be noted that these are direct jobs. At this stage, it is impossible to evaluate the indirect and induced effects. Compared to the 14 000 net jobs created in the Luxembourg economy as a whole in 2017, these 250 jobs might seem quite modest. However, they are far from marginal when set against the 1 280 net jobs created in the financial sector alone last year. SIGNIFICANT NUMBERS OF BUSINESSES DRAWN TO LUXEMBOURG British slowdown could weigh on Luxembourg exports This good news on the employment front should not, however obscure the fact that the prospect of Brexit seems to be weighing on economic performance in the United Kingdom, a major trade partner for Luxembourg. 2 Although the British economy is assuredly not in crisis, there are a few negative signs. Economic growth has slowed, due notably to slackening household consumption (penalised by the depreciation of sterling following the Brexit vote) and the drop in investment expenditure. Almost all European economies have seen their economic outlook revised significantly upward since early 2017 – but not the British economy. British GDP growth was 1.8% in 2017, compared to 2.4% for the euro zone, and is expected to be just 1.5% in 2018 and 1.2% in 2019 (compared to 2.3% and 2.0% respectively for the euro zone). While the British economy expanded more rapidly than the euro zone from 2012 to 2016, it is now lagging behind. _______________ 1 https://assets.kpmg.com/content/dam/kpmg/lu/pdf/Brexit-Roadmap-April-2018-Update.pdf 2 The British market is Luxembourg’s 2nd largest export market for services and its 5th largest for goods (see Regards 05 sur l'impact potentiel du Brexit, STATEC, February 2017). Bank 6 Asset/fund management 9 Insurance 10 Capital investment 5 Other financial activity 3 Total 33 *Number of companies having carried out/confirmed the transfer of part of their activities to Luxembourg since the vote in favour of Brexit Sources: press, KPMG Sector of activity Number of societies*