Page 14 - Economic report 2020

External environment of the

Andorran economy

I. International economy

1. Main features of economic development in 2022

After a historic fall in global economic activity in 2020 due to the Covid-19 pandemic, and
just when the economy was on the road to full recovery, the outbreak of the war in Ukraine in
February 2022 unleashed a serious energy and supply crisis which pushed up inflation around the
world, impacting global growth.

The Russian invasion of Ukraine and the sanctions imposed on Russia by the western economies
have led to substantial increases in the prices of commodities, oil, natural gas and some foodstuffs
(sunflower oil, wheat, maize), causing inflation to rise considerably in much of the global economy.
Subsequently, at different rates and intensities according to the country, these increases influenced
other consumer products, so that the trend in underlying inflation also rose in 2022.

On the one hand, high inflation has led the 2022 was marked by high inflation
central banks around the world to adopt a
12 and interest rate rises.
countercyclical policy (interest rate rises) to
moderate economic activity and therefore the
upward pressure on prices. On the other hand, most states have used their fiscal margin for
manoeuvre to cushion the impact of rising prices on their population, partly offsetting the effect
of the monetary policy.

According to the International Monetary Fund (IMF), world Gross Domestic Product (GDP) has
grown 3.5% in 2022, representing a major slowdown in comparison with the growth recorded
External environment of the Andorran economy | I. International economy
in 2021 (+6.3%), but not as significant as initially expected. In fact, the economy has appeared
resilient in the face of one of the most important inflationary episodes in history, as the growth
seen in 2022 is in line with the average over the period before the pandemic.

Although, in 2022, inflation reached levels not seen in recent decades, in the last quarter there
were signs of moderation in the prices of natural gas and oil. The prices of food commodities
and metals also stabilised at the end of the year. Moreover, the improvement seen in the
bottlenecks that were affecting the global supply chains since the start of the pandemic and the fall
in transport costs also helped to slow down
Towards the end of the year, the supply inflation to some extent, especially notable in
crisis and inflation surge eased. the USA and the European economies that
are less dependent on Russian oil. In the USA,
year-on-year inflation rose to 9.1% in June, but
since then, began to fall, reaching 4.0% in May 2023. In the Eurozone, inflation reached a high
in October, of 10.6%, and slowly decreased to 6.1% in May 2023. In the developing economies,
inflation increased more significantly in areas that are more dependent on Russian energy. On the
other hand, in the Asia-Pacific economies, the inflationary effect was lower and only a moderate
increase in food prices was recorded. Cooling growth in China due to the zero-Covid policy also
resulted in lower inflation in that region.