Luxembourg's central government deficit increases to €91 million

Luxembourg's central government spending increased faster than revenues in the first half of 2017, generating a bigger deficit than at the same time last year, the country's central bank said on Friday.

Expenditures grew an annual 8.2%, higher than the 7.7% posted by revenue, in the January through June period, resulting in a €91-million deficit, the bank said in a statement. That is up from €47 million at the same point last year.

"However, if the observed trend were to continue in the second half of the year, the central government deficit would be smaller than that projected in the budget for 2017," the bank said. The Luxembourg Central Bank "will carry out a full assessment of the state of public finances in its opinion on the 2018 draft budget."

Luxembourg's 2016 state budget balance was better than anticipated when lawmakers voted it into law, Finance Minister Pierre Gramegna told members of two parliamentary committees on Thursday.

The general account, adjusted for three exceptional transactions, came in with a €256.8m deficit last year, the ministry said in a statement. That's €181.4m below what was expected, it said.

"The general account for the financial year 2016 shows a favourable trend towards the presentation for 2018," Gramegna said.

The central bank said Luxembourg's economy grew just 0.1% in the first quarter compared with the last three months of 2016, the bank said. Still, because of the "provisional nature" of the data, "caution is still needed in interpreting the quarterly national accounts." 

"This prudence is justified by the contrasting economic developments observed during the first half of 2017, which nevertheless indicate positive growth in most sectors," it said, citing slower first-half growth in industry and construction compared with "more favourable developments" in the financial sector.

Overall there appears to be "a rather favourable economic situation in Luxembourg."

The bank will publish economic forecasts in December.

(Alistair Holloway, alistair.holloway@wort.lu, +352 49 93 739)