Agefi Luxembourg - septembre 2026

AGEFI Luxembourg 12 Septembre 2026 Économie & Banques ByAdelinREMY, Editor I n April 2016, presidential candi­ date Donald Trumpmade a re­ markable promise: he would eliminate America’s national debt — then about $19 trillion—over eight years. The Committee for a Res­ ponsible Federal Budget immedia­ tely concluded that the numbers did not add up. Ten years later, the verdict of arithmetic is even more striking: US gross federal debt has passed $40 trillion, more than twice its level when Trump first entered theWhite House. The question today is therefore not whether Trump canliterallypayoffthe$40trilliondebtduringhissec­ ond term. He cannot. The more interesting question iswhetherhiscombinationoffastereconomicgrowth, tariffs, government savings, cryptocurrency and lower interest rates could at least reverse the upward trajectory ofAmerica’s debt. The answer, on current evidence, is that the obstacles are formidable. Growth is not delivering a fiscalmiracle EconomicgrowthisTrump’smostconventionalroute to improving the debt position. If nominal GDP ex­ pands faster thangovernment debt, the debttoGDP ratiocandeclineevenwithouteliminatingthedebtin dollars. But 2026growthhas so far beenmodest. Real GDP increased at an annualized rate of only 1.5% in thesecondquarter ,following2.1%inthefirstquarter. Currentdollar GDP grew 7.9%, reflecting both real growth and inflation. More encouragingly, real final sales to private domestic purchasers increased 3.9%, suggestingthatunderlyingprivatesectordemandre­ mains considerably stronger thanheadlineGDP. Nevertheless, the fiscal arithmetic is moving in the wrong direction. The Congressional Budget Office (CBO) ‘s baseline forecast puts the FY2026 federal deficit at approximately$1.9 trillion. Growth cannot eliminateitwhileWashingtoncontinuestorundeficits approaching6%ofGDP.Trump’sownFY2027budget assumesapproximately 3%realannualgrowthfora decade and consequently produces a considerably better debt trajectory than the CBO baseline. But the Committee for aResponsibleFederal Budget consid­ ers these growth assumptions highly optimistic. Tariffs: the great revenue disappointment? PresidentTrumphaspresentedtariffsasanimportant sourceof government revenue. Inprinciple, this is at­ tractive: unlike borrowing, tariff receipts do not directly add to the federal debt. But 2026 has ex­ posedamajorweaknessinthecalculation: gross tariff collections are not necessarily net federal revenue . Thiscompletelychangestheinterpretationoftar­ iffrevenue.Itisnotenoughtosaythattariffs generated tens of billions of dollars (2026: $165 billion). The relevant numberfordebtreductionisthe net fiscal contribution after refunds (2026: 110.5 billion), behavioral ef­ fects and economic costs . Tariffs may also reduce imports — and therefore eventually reduce the taxbaseonwhich the tariffs themselves are collected. They can raise consumer prices, encourage supplychain relocation andprovoke retaliation. Tariffscanbearevenuesource.Theycannotplausibly finance the repayment of $40 trillion. DOGE: $215 billion versus $40 trillion The Department of Government Efficiency (DOGE) providesanotherapparentlyattractiveanswer.DOGE currently claims approximately $215 billion of esti­ mated savings , from contract cancellations, lease re­ ductions, workforce reductions, program changes, fraudandothermeasures.EventakingDOGE’sfigure at face value, however, $215 billion represents only about 0.5%of the $40 trillionnational debt . DOGE has concentrated primarily on discretionary expenditure. America’s longtermfiscal problem lies elsewhere: Social Security,Medicare,Medicaid and interestonthedebt .Toputthescaleintoperspective, $215billionof savings is less thanoneeighthof a $1.9 trillion annual deficit. Bitcoin cannot close the gap Trump’sembraceofcryptocurrencyprovidesanother possible source of wealth.The administration has es­ tablishedaStrategicBitcoinReservecontainingBitcoin already held by the US government, largely through asset seizures. The idea has obvious political appeal: ifBitcoinappreciatesdramatically,governmentassets couldbecomeextremelyvaluable.Bitcoinheldbythe government does not reduce Treasury debt unless it is sold and the proceeds are used to repay debt.And the amount involved is tiny relative to the debt. Evenaspectacularincreaseinthevalueofthegovern­ ment’s Bitcoin holdings would therefore be unlikely to transform the fiscal position. Crypto may become amajorAmerican financial and technological indus­ try; it is not a substitute for a sustainable primary budget surplus. Defense spendingmoves in the opposite direction TheFY2027budgetrequestenvisagesapproximately $1.5trillionindefensefunding ,including$350billion through reconciliation (voted inCongress) anda $1.1 billiondefense discretionary spending. Thisreflectsagenuinestrategicdilemma.TheUnited States is simultaneously confronting China, Russia andIran,maintainingNATOcommitments,modern­ izing its nuclear forces and investing in missile de­ fense, space and artificial intelligence. Defense spendingisthereforepoliticallyandstrategicallydiffi­ cult to cut. But if defense spending riseswhile the ad­ ministration alsomaintainsmajor tax reductions, the government must find compensating savings else­ where or accept larger deficits. Thatiswhythearithmeticofdebtreductionultimately leads topoliticallymuchmore difficult territory. The elephant in the room: entitlements Social Security, Medicare andMedicaid are far larger than most of the programs targeted by DOGE. The same is true of interest on the existing debt. Treasury data show that the federal government was already spending approximately $1.17 trillion annually on interest on thenational debt as of July 2026 , equiva­ lent to about 19%of federal spending. Andthisproducesadangerousfeedbackmechanism: higher debt → higher interest payments → larger deficits → more borrowing → still higher debt. Once interest becomes a major component of the deficit, simply cutting government programs be­ comes progressively less effective. The Federal Reserve is not Trump’s Treasury This is where monetary policy becomes crucial. Trump has repeatedly favored lower interest rates, sincecheapermoneycanstimulateinvestment,hous­ ingandeconomicgrowth—and,inprinciple,reduce the government’s refinancing costs. But the Federal Reserve cannot simplymonetize the national debt at the president’s request. The appointment of Kevin Warsh as Fed chairman has intensified the debate. Trump clearly wanted lowerrates,yetWarsh’sFedhassofarkeptthefederal funds rate at 3.50–3.75% , rather than delivering the cuts the president has sought. The reason is straight­ forward: inflation remains above the Fed’s 2%objec­ tive. The latest GDP report showed the PCE price index rising at a 5.1% annualized rate in the second quarter, with core personal consumption expendi­ tures (PCE) at 3.4%. There is therefore a dangerous temptation to imagine that the Fed could solve the debt problem through inflation or very low interest rates. It couldnot do sowithout consequences. IfinvestorscametobelievethattheUnitedStateswas deliberately inflating away its debt, they could de­ mand higher longterm Treasury yields. The dollar could weaken and inflation expectations could rise. The government’s borrowing costs could conse­ quentlyincreaseratherthandecrease.Thatisprecisely why the independence and credibility of the Federal Reservematter somuch. The $40 trillionwarning The most significant development may therefore be psychological rather thanmathematical. America’s national debt has nowpassed $40 trillion , includingapproximately$32.3trillionofdebtheldby the public and $7.8 trillion of intragovernmental holdings. More worrying still, the debt increased by approximately $3 trillion in only one year . At the same time, the federal government continues to run deficits of around $2 trillion annually. The compari­ son with Trump’s original promise is extraordinary. In 2016, he proposed eliminating $19 trillion of debt in eight years. In 2026, America has more than $40 trillion of debt. The arithmetic has not merely failed tovalidate thepromise. It hasmoveddramatically in the opposite direction. What could actuallywork? There is no single Trumpstyle solution. A credible longtermdebt strategy would require some combi­ nation of: higher sustained productivity and real GDP growth; slower growth of entitlement spen­ ding;controlleddefenseexpenditure;additionaltax revenue;lowerprimarydeficits;andstable,credible monetarypolicy. Artificial intelligence and higher productivity could eventually provide a major boost to growth. Agen­ uine reduction inwaste couldhelp. Tariffs cangener­ atesomerevenue.CryptocouldstrengthenAmerica’s financial sector. But none of these measures is re­ motely large enoughby itself. The central issue is ultimately simple: America does not need tofind $40 trillion. It needs to stop adding to the debt faster than its economy grows. Only after achieving persistent primary budget surpluses could Washington realistically begin paying down the principal. The $40 trillion mile­ stone therefore represents more than a large num­ ber. It is a test of whether the world’s largest economy can reconcile its ambitionswith the arith­ metic of compound interest. And compound interest, unlike political promises, does not negotiate. EDITORIAL President Trump: Pay Off $40 Trillion Debt? T he PwC Business Ba­ rometer rose to +2 in September, up from ­ 1 in August, continuing a marked improvement in bu­ siness sentiment. Luxembourg’s consumer confidence also im­ proved to 8 inAugust from 10 in July, al­ though it remains firmly in negative ter­ ritoryandcouldcome under renewed pres­ sure if household en­ ergy costs rise further. Annual inflation stood at 2.2% inAugust, whileenergypriceswere5.8%higherYoY. Theoutlook forhouseholdshasneverthe­ less become more challenging: diesel pricesroseabove€2perlitre,whileheating oil reached €1.51 per litre. With winter approaching, renewed energyprice pres­ surescouldweighonhouseholdspending and feed through inflation. STATEC’s revised forecast puts average inflationat1.8%for2026,downfrom2.5%, with food inflation projected at 2.1%. However,theforecastpredatesthereesca­ lationoftheconflictintheMiddleEastand doesnotreflectthesubsequentriseinener­ gy prices, with Brent crude oil approach­ ing USD 100 per barrel in September. Indeed, the labour market remains a source of pressure. The unemployment rate stood at 6.3% in July, while registered jobseekers were 8.4% higher than a year earlier.Despitethis,theOECDexpectseco­ nomic growth to gradually strengthen, with GDP projected to grow by 0.7% in 2026, though this remains subject to the same external risks. The Eurozone economy is also showing tentative signs of renewed momentum, although this remains tested by renewed energypricepressures.GDPexpandedby 0.6% QoQ in Q2 2026, following stagna­ tion in Q1, while the Composite PMI reacheda 9monthhighof 52.0 inAugust, supported by stronger manufacturing activity. Spain and Portugal expanded by 0.7%and0.8%respectively,outperforming the bloc’s largest economies, while Germany, France and Italy each grew moremodestly.Inflation,however,hasre­ emergedasakeyconcern.Annual inflation accelerated to 3.3% in August from 2.9% in July, while services inflation, by contrast, eased to 3.0%. Renewed price pressures have contributed to a broad selloff in govern­ ment bond, with benchmark yields in Germany and the Netherlandsreach­ ing 15year highs, France’s an 18­ year high, and Spain’s a 3year high in early September. With inflation now well above the ECB’starget,marketsareincreasinglypric­ ing in the possibility of another rate hike at the ECB’s forthcomingmeeting. Globally, economic activity remains resilient, but financial conditions are becoming more challenging amid persis­ tentinflation,fiscalandtradepressures.In theUS,labourmarketconditionsstrength­ ened in August, with nonfarm payrolls increasingby162,000andunemployment holding at 4.1%, pointing to a rebound afterJuly’sdecline.Meanwhile,fiscalpres­ sures remain elevated, with government debt surpassing USD 40 trillion and the Treasurydoublingthesizeofitsdebtbuy­ backs amid rising borrowing costs. Elsewhere, UK inflation rose to 2.9% in July, while Japan’s 10year government bondyield reached 3% in September—its highest since 1996, as investors reassessed inflationandfiscalrisks.Againstthisback­ drop, gold prices rose 11% in August towardsUSD4,500perounce,whileTrade policyadded further uncertainty,with the Trump administration imposing tariffs of up to 100% on drones while moving to refund around USD 100 billion in “LiberationDay” tariffs. Ultimately, fiscal pressures and persistent geopoliticalriskscontinuetocloudtheout­ look. The recovery, however, will increas­ ingly depend on the evolution of energy prices,inflationandborrowingcostsinthe forthcomingmonths. Kenny P ANJANADEN Partner, AWM & ESG Research Centre Osama A L S ABBAGH Senior Manager, AWM & ESG Research Centre PwC Luxembourg The monthly PwC barometer, in collaboration with AGEFI Luxembourg, is an economic confidence indicator that is intended to be a simple and pragmatic tool aimed at capturing the economic atmosphere of the Grand Duchy each month. The indicator is based on a number of sentiment indices published monthly by Eurostat and Sentix, which are based on surveys (businesses, consumers or investors/ analysts). The indicators used are: consumer confidence (EA for euro area and LUX for Luxembourg), industrial confidence (EAand LUX), construc­ tion confidence (EA and LUX), financial con­ fidence (EA), retail confidence (EA), services confidence (EA) and the Sentix Index (EA). The evolution of the barometer over the past four years is displayed on the graph below. © PwCMarket Research Centre, IHSMarkit, Sentix, STATEC The monthly PwC Barometer