Page 12 - Economic report 2020

increase in trade flows can be explained by price rises. Moreover, the Chamber’s surveys have
shown an improvement in business activity and rises in sales figures and investment.

Along the same line, financial, real estate, professional and technical activities have seen a pretty
positive performance, with an estimated increase in GVA of 5.4%, added to the strong growth
recorded in 2021. Remember that this branch of services is the most important in the economy,
representing more than 37% of total GVA.

As for the specific case of the banking sector, the trend in 2022 was very positive, with 16.3%
growth in the aggregate profits of all this country’s institutions, favoured by a dynamic economy
and rising interest rates. This increase was also accompanied by a 3.6% increase in the volume
of assets under management. The improvement in the interest margin caused by the European
Central Bank raising the interest rate helped to raise the profitability ratio of the banking
sector’s own resources to 7.57%, while the downward trend in the default rate continued.
The institutions have sound balance sheets with solvency and liquidity ratios that are above the
European bank average.

In the public sector, the end of the pandemic enabled the Government to continue the strategy of
reducing public spending which started in 2021. Public sector actions took the form of a further
reduction in central and Comú government current transfers which, in aggregate terms, was
greater than in the previous year. In contrast, government operating costs and real investment
increased overall, more than they did in 2021. In parallel, tax revenue grew strongly. Consequently,
the central government went from a situation of deficit in 2021 to obtaining a budget surplus of
2.3% of GDP in 2022. Equally, the Comú governments increased their surplus by four tenths to
0.9% of GDP.
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After this good financial year in 2022, the prospects for economic growth in Andorra in 2023
indicate slower economic growth, mainly held back by the impact of inflation on demand and
rising interest rates, and also by the loss of momentum in the Eurozone.

Accordingly, GDP data for the first quarter of 2023 show a positive trend in the economy,
with growth of 3.5% year on year in real terms (according to the first published estimate, still
under review), which represents a slower rate of growth than the 5.2% recorded in the fourth
quarter of 2022. The tendency towards moderating growth in Andorran economic activity is
also reflected in the trend in the main available indicators of activity for the first few months of
2023, although the increases are still quite significant and indicate that the economy continues
to grow at a strong pace.

In this context, one of the main concerns for the next few months is the loss of momentum in
consumption due to steeply rising prices, but also the impact on activity of toughening finance
conditions and the weakening external context – internationally and especially in Europe. These
factors will continue to influence the progress of the Andorran economy in 2023 and limit its
capacity for growth.

On the other hand, the lever that contributes most to growth will continue to be tourism.
Developments in neighbouring countries, especially Spain, will be another factor supporting the
Andorran economy. Spain is again one of the European countries with the best prospects for
2023. All in all, indications are that Andorran economic growth will be positive in 2023 but lower
than in the previous year.

Introduction Within this relatively favourable economic situation, the Andorran economy must also continue
to face structural challenges in 2023. The development of policies that improve productivity and