Andorra: Economic Outline

Economic Indicators

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Andorra's economy is dependent on foreign trade and relies primarily on tourism, commerce and financial services. Growth has picked up slowly in recent years but remains sensitive to external impacts, and it had been relatively stable since 2016. Nevertheless, as a small, highly concentrated economy with a high dependence on tourism, Andorra was hit hard by the COVID -19 pandemic: according to the World Bank’s estimates, real GDP contracted by 11.9% in 2020. Data from the national government set the growth rate at 5.9% in 2021 thanks to the easing of COVID-19 restrictions, with a forecast of 6% for 2022, subject to global economic recovery.

Andorra's public finances have been resilient to the Covid-19 pandemic. The general government recorded a fiscal deficit of 1% of GDP in 2020, although it widened to 3.5% in 2021 (Fitch Ratings). The government budget is expected to return positive in 2022 (the country had a record of stable fiscal surpluses averaging 1.9% of GDP in the decade prior to the pandemic), as fiscal support measure related to the COVID-19 pandemic phase-out and direct tax revenues benefit from the high employment rate. The debt-to-GDP ratio peaked at 50.4% of GDP in 2021 but is expected to follow a downward trend in the short term, at 46.7% of GDP in 2022 and 41.2% in 2023 (compared to a pre-pandemic level of 35.4% - Fitch Ratings). According to Andorra's fiscal rules, central government debt can exceed 40% of GDP only under exceptional circumstances. When this threshold was breached in 2020, the government approved a financial sustainability plan aimed at reducing the ratio. In order to reach this target, Andorra debuted on the international bond markets with a 10-year EUR 500 million in April 2021, followed by a private placement for EUR 175 million 20-year Eurobond in October with a coupon of 1.7%.
The agricultural sector's contribution to the economy is limited, accounting for 0.5% of GDP. The production is small, with arable land representing only about 5% of the country’s surface. The main productions are small quantities of rye, wheat, barley, oats, vegetables, tobacco, sheep and cattle. Therefore, most food has to be imported, making the economy vulnerable to changes in fuel and food prices. Industry accounts for 9.9% of GDP, while services play a major role: the Andorran economy is in fact based on its services sector (79.2% of GDP), notably tourism, real estate and finance (World Bank, latest data available). The banking sector is relatively large when compared to the country’s economy, with the total banking assets representing around 7 times the nominal GDP.

Andorra's income per capita is higher than the European average, and the country has one of the highest life expectancy rates in the world. As a result, the urban environment in the Principality is safe, the healthcare system is well-developed, and the education system is trilingual (Catalan, French and Spanish). The economic crisis resulting from the Covid-19 pandemic prompted higher levels of unemployment: the employment rate was at its highest level in 10 years as of the third quarter of 2021 (85% of the total labour force – Fitch Ratings). Since June 2021, less than 0.1% of the labour force has been supported by the wage support scheme.

Monetary Indicators	2015	2016	2017	2018	2019
Euro (EUR) - Average Annual Exchange Rate For 1 MUR	0.03	0.03	0.03	0.02	0.03

Source: World Bank - Latest available data.

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Latest Update: February 2023