Companies in Luxembourg are suffering from high interest rates, according to a study published this Monday by Statec. With an average rate stabilized at 4.4% over the first four months of the year (compared to 4% in the euro zone), companies must pay significantly higher interest on their loans. In addition, the supply of credit is restricted, penalizing investment projects.
Thus, Statec calculates that Luxembourg companies have paid nearly 2 billion euros in additional interest charges between 2021 and 2023, a dizzying increase of 62%. Consequence: the repayment of interest on loans represented in 2023 more than a third of the gross operating surplus, fifteen percentage points more than in 2021 and at a significantly higher level than in the rest of the Europe.
Real estate activities and construction are among the sectors which have paid the most interest, partly explaining the crisis which still lasts in this sector. However, in construction, “half of the companies regularly call on banks for financing”. The situation is therefore all the more penalizing for them. Statec also notes that banks have noted a drop in demand for credit since the first rate increase, in July 2022.
The rise in rates, coupled with a tightening of credit granting conditions, is causing a decline in investment projects and the outlook in this area remains gloomy. The total amount of credits granted has collapsed since 2022 (-12% over one year in 2022, -40% in 2023 and -45% from January to March 2024).
At the same time, real investment by non-financial corporations in Luxembourg decreased by 2.5% in 2022 and 6% in 2023 and the investment rate in Luxembourg is among the lowest in the euro zone since 2015. non-residential construction, investment collapsed by 14% year-on-year in the first quarter of 2024. Investment in machinery and equipment fell even more, with a score of -26%.
Statec, however, manages to end on an optimistic note in these times of crisis, and forecasts a rebound in investment in 2025 thanks to the fall in rates. The statistical institute estimates that companies’ interest charges should fall by around 600 million euros between 2023 and 2025, a drop of 12%. It will then be necessary to restart demand, the absence of which penalizes greatly, particularly in construction. Lowering rates could also help in this area.
For the banks, everything is fine
If companies are suffering from high interest rates, the banks are rubbing their hands, with an interest margin which increased by 19% year-on-year in the first quarter, to nearly 3 billion euros collected. With the addition of a 5% increase in net commissions and a 5% reduction in general expenses in total (-12% excluding personnel costs), the banking sector’s results increased by 20% year-on-year in the first quarter.
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