From the very start of the war, the price of crude oil (Brent) came under extreme pressure, reaching nearly $120 by the end of March, compared with around $70 before hostilities began. Although the ceasefire of 8 April 2026 and the start of negotiations brought prices back down to between $95 and $100 in mid-April, prices remain high, according to Statec in the April issue of its publication ‘Conjoncture Flash’. This high level suggests that fuel prices are set to remain high for the long term.
In Luxembourg, this surge in oil prices is contributing 0.38 percentage points to annual inflation via fuel (diesel and petrol). This acceleration in energy inflation has pushed up inflation forecasts for the eurozone, from 1.9% to 2.6% for 2026, according to the IMF. This significant rise will bring forward the next index adjustment slightly. STATEC still expects this adjustment to take place in the second quarter of 2026, though now more likely towards the middle of the quarter rather than the end, as originally planned.
Household confidence at an all-time low
The most significant impact has been on consumer confidence. In March, it fell sharply to its lowest level in a year. Households are concerned about the deterioration in their financial situation and the general economic outlook. Their inflation expectations have reached their highest level since September 2022.
This caution is evident in the automotive sector, where registrations in the first quarter of 2026 showed a slight year-on-year decline of 1.1%, remaining well below pre-pandemic levels. In Luxembourg, registrations exceeded 50,000 per year between 2016 and 2019, a threshold that has not been reached since.
A resilient real economy
Paradoxically, Luxembourgish businesses are currently showing a degree of resilience in the face of events that, for the time being, appear to have had little impact. As a result, confidence among manufacturers rebounded in March, buoyed by orders in the metalworking sector. In the construction sector, despite a slight decline, sentiment remains on an upward trend, with encouraging signs for employment, as suggested by the trend in leading indicators such as the rise in overtime and temporary work in late 2025/early 2026. As for services, sentiment in the retail trade and non-financial services sectors even improved slightly in March.
Ongoing risks for the future
Whilst businesses appear to have weathered the initial shock, dark clouds are gathering on the financial horizon. Cautious investors are demanding a higher risk premium, which has led to a sharp rise in 10-year government bond yields (by around 45 basis points on average across the eurozone). Furthermore, although Luxembourg and Europe are not directly dependent on Middle Eastern gas (less than 5% of imports), the conflict is disrupting transport via the Strait of Hormuz. The impact on liquefied natural gas (LNG) prices in Europe, already evident in spot prices, could intensify from April onwards due to supply delays.
