In the statement, ABBL chairman Guy Hoffmann cautions that even though a short-term solution is needed to “manage massive increases in fuel and commodity prices”, an overuse of the indexation process will also bring about negative implications for the country’s financial sector. In light of the upcoming tripartite meeting, the Bankers’ Association thus urges all concerned parties to “limit indexation to once per year”.
Indexation – ABBL calls for a balanced approach Luxembourg, 17 March: It is no surprise that geopolitical events have an impact on the local economy. According to STATEC, the inflation rate for 2022 is expected to be 4.4%, due to the pandemic of the last two years and the Russian-Ukrainian war of the last few weeks. The OECD has also recently revised its global output forecast downwards by 1% and raised its inflation estimate by 2.5%.
The automatic indexation mechanism in Luxembourg is a proven economic tool to ensure that salaries keep pace with the cost of living, but at what cost to competitivity? After an index increase in October 2021, STATEC now predict a further index in Q1 and potentially a second in Q4 of this year.
According to Guy Hoffmann, Chairman of the ABBL: “Whilst we understand that a short-term solution is necessary to manage massive increases in fuel and commodity prices, the impact of multiple indexations within a few quarters will have significant implications for the financial sector.
Financial institutions choose to locate in Luxembourg for a myriad of reasons, but for 90% of the banks and financial services companies, they have a parent company elsewhere, in countries which do not necessarily have the same indexation mechanism and have difficulty understanding an automatically triggered increase in employment costs of their Luxembourg branch.
The financial sector is a key pillar of the Luxembourg economy, contributing around 30% to GDP, 12% of employment and over 35% of State revenues (source CES). In view of the upcoming Tripartite discussion, the ABBL strongly encourages those around the table to agree to limit indexation to once per year in until the end of the current period of economic instability.”
