With Luxembourg caught somewhere between strict anti-virus measures and an easing of rules, and with a vaccine campaign slowly rolling out, Statec said it expected the country’s economy to grow 4% in 2021, an optimistic scenario.

A contraction of 0.5% expected in a worst-case scenario is less likely to materialise, the body said on Thursday.

“Luxembourg is one of the countries which has resisted the best,” said analyst Bastien Larue. “The numbers aren’t good, but less bad than one might image.” During the third quarter of 2020, gross national product (GDP) bounced back 10%, he said, after a dramatic dip during the March and April lockdown.

The financial sector’s weight in the economy--accounting for a quarter of GDP--is one of the reasons Luxembourg performed comparatively well as large parts of the workforce could switch into remote working.

But banks also less exposed to risks, said Pauline Perray, a Statec economist. Non-performing loans--that are in default for 90 days or never repaid--represent just 1% of lending.

“Luxembourg banks are less exposed to loans granted to sectors directly impacted by the health crisis,” Perray said. “The average is at 15% compared to 22% at European level.”

While forecasts for 2021 are difficult because of the ongoing pandemic, Statec said there is a strong potential for households to spend big after accumulating savings worth an estimated €1.2bn because of lockdown measures in 2020.

"We estimate a rebound in consumption between 6% and 8%", said Cathy Schmit. "We believe a good chunk of the savings will be spent."

There are some hurdles to overcome, however. Consumer confidence at the end of last year was markedly low and households said they were unlikely to make big purchases amid worries over their financial situation. In addition, most savings are accumulated by high-income earners who are under less pressure to spend.

“This economic crisis will not be without structural consequences on the economic fabric,” said Ferdy Adam about the longer-term outlook. “The economic rebound expected this year does not represent the end of the crisis.”

This article was originally published in French on Paperjam.lu and has been translated and edited for Delano.