The impact of war on the Luxembourg economy

Energy prices, indexes: The war in Ukraine is causing further uncertainty in Luxembourg.

Conflict in Ukraine

Energy prices, indexes: The war in Ukraine is causing further uncertainty in Luxembourg.

(Mm with ndp)-Sanctions have been enacted to have a major impact on the Russian economy and to minimize the impact on the European economy. This is what many ministers have said about the EU’s various sanctions packages in response to Russia’s aggression. Ukrainian. But at the same time Impacts on certain sectors of the European and Luxembourg economies are inevitable..

Minister of Economy Franz Fayacht discusses the economic implications of the war in Ukraine and the naive attitude towards European dictatorship.

“It is still impossible to estimate how much the consequences of the war will affect the Luxembourg economy as a whole, but we certainly have to face major economic and social challenges. We will work with national authorities to mitigate the effects of the war on Luxembourg companies, “said Jean-Paul Olinger, director of the Luxembourg Business Alliance (UEL).

General uncertainties about future developments can lead to lower investment and consumption in Luxembourg. “Therefore, the economy can slow down.”.. At the same time, energy prices, inflation, and the resulting corporate costs are rising. “Still, the world economy is far from recovering from the consequences of a coronavirus pandemic.” Many companies still suffer heavily from the effects of a pandemic, says Jean-Paul Olinger.

Nonetheless, there is a deep understanding of the people involved in the Luxembourg economy in connection with the tough decisions made by the political class. “Economic prosperity and peace are always inextricably linked, and any military aggression poses an unacceptable threat to the well-being of all countries and their peoples involved, damaging all aspects.”

Exchanges are already declining

For many Luxembourg companies, the question is how to respond to Russia’s invasion of Ukraine. According to Treasury Minister Franz Fayacht 20 Luxembourg companies are currently active in Russia -Four have their own subsidiaries.

“But in a sense, the companies involved are already paying attention,” said Carlo Teren, director of the Chamber of Commerce. “Of course, no one expected an intrusion, but valuations in these markets have already been classified as risky in the past, especially in the financial sector.”

Since 2014, the EU has gradually imposed restrictions on Russia in response to the illegal annexation of Crimea. This has affected trade, for example in the area of ​​financial services. “These have dropped sharply since 2014,” continues Carlo Thelen. “Financial center representatives say the possible impacts are manageable. Not all indirect effects can be assessed yet, but overall. The direct impact is relatively limited“.

ArcelorMittal isteiner der größten Investoreninder Ukraine, wo der Stahlhersteller 2005 das Werk Kryviy Rih für 5.2 Milliarden US-Dollarge kaufthat.

Metals, batteries, mechanical structures: Grand Duchy companies must convert after the war in Ukraine.

Luxembourg has always maintained good economic relations with Russia. “The Governor of Russia comes to the Chamber of Commerce on a regular basis and is always in great interest in our company.” However, in recent years, EU sanctions have significantly reduced these efforts.

Russia has many natural resources such as oil and natural gas, making it an attractive market with great potential. “Unfortunately, the political situation has always been a major obstacle to the development of our relationships.”.. However, Russia is no longer the world’s largest economy and its gross domestic product is comparable to Spain.

Energy prices and indices

Carlo Teren assumes that the Ukrainian conflict will not have the same impact as a pandemic. But from a purely economic point of view, war leads to market instability and instability. While it could be a big blow to some Luxembourg companies that rely primarily on raw materials, there are concerns that energy could be even more expensive at the macroeconomic level. This year’s inflation and the resulting tranche of the inflation index are also a concern for businesses.

“The indexing, perhaps on April 1, after the first index tranche was already paid in October last year, can be fatal to our economy and business.” This exceptional situation. Now we need to find a way to introduce an interval of about 12 months between future vulnerable index tranches, as was already the case in 2012.

ESG is becoming more important

Are concepts like “change by approach” and “change by trade” now a thing of the past? “Yes, we can say that,” Carlo Thelen replies. “As economists, we have always sought to separate economic and political interests as long as this can be defended. As a chamber of commerce, we have always sought to conquer new markets. Today, we will certainly change our minds in certain respects.

Anyway, environmental, social and governance (ESG) standards would have become more important.In the future, companies will take these criteria further into their strategies and business processes. “It will also be the next big debate on a European scale,” Carlo Thelen declares, specifying that everything should not be considered in black and white.

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