Interest paid by companies in Luxembourg represented more than a third of their gross operating surplus in 2023, placing it top of the table of countries in the European Union.
Luxembourg companies paid almost €2 billion in additional interest charges between 2021 and 2023, a rise of 62%. This represented 37% of their earnings before interest, taxes, depreciation and amortization (EBITDA), an increase of 15 percentage points compared with 2021.
The figures were unveiled by state statistics office Statec on Monday in a flash report that showed that high interest rates were negatively affecting business costs, but also credit supply and investment among Luxembourg companies.
The report’s authors said that the sharp rise in the proportion of interest paid in Luxembourg is “largely explained by the fall in gross operating surplus” which fell by 2% between 2021 and 2023 in Luxembourg, compared with 15% increase in the eurozone.
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Statec notes that the real estate, administrative and support services and construction sectors would have paid the most interest.
Restricted access to credit
In the Grand Duchy and across the eurozone, high interest rates have been coupled with banks tightening their conditions for business loans. As well as demanding more collateral, they have raised fees and margins, and turned down more applications, which resulted in what Statec called a “gloomy” outlook for loan demand in the second quarter of 2024.
Indeed, the amounts of new loans granted to businesses collapsed by 45% in the first quarter of the year, on top of a fall by 40% in 2023.
Luxembourg banks continue to profit from high interest rates
Nevertheless, earnings in the Luxembourg banking sector rose by 20% year-on-year in the first quarter of 2024, driven by continued strong growth in interest margins, according to a recent report published by financial regulator CSSF.
Although Luxembourg’s investment rate by non-financial companies has consistently been among the lowest in the eurozone due to a relatively smaller share of industrial activity, it fell by 2.5% in 2022 and by 6% in 2023, Statec reports.
But the statistics office is predicting a rebound in 2025, when interest rates should be lower. “Corporate interest charges in Luxembourg should fall by around €600 million between 2023 and 2025,” the report states. That would represent a drop of 12%, compared with a 10% fall in the eurozone.