IMF Executive Board Concludes 2022 Article IV Consultation with the Principality of Andorra
The Andorran economy rebounded strongly from the large contraction caused by the COVID-19 pandemic. Growth in 2021 (8.9 percent) was supported by a recovery in tourism, retail trade, construction, and professional services. Headline inflation rose to 4.9 percent in March 2022, the highest reading in the last 10 years. However, price pressures were more limited than in neighboring countries thanks to long-term contracts with foreign energy suppliers that mitigated the rise in electricity prices. Labor market conditions tightened due to declining unemployment and a sharp rise in job vacancies but did not create significant wage pressures. Despite the roll back of most COVID-related measures, the overall policy mix remained supportive in 2021.
With growth projected at 4.5 percent in 2022, activity is expected to return to pre-crisis levels in the second half of 2022. However, downside risks to the outlook are significant, related to the economic impact in Europe of the war in Ukraine, the sharp increase in commodity prices, an unfavorable evolution of the pandemic, weaker recoveries in neighboring countries, and tighter financial conditions. Strong fiscal buffers, a large current account surplus, newly accumulated external reserves, and liquid and well-capitalized banks, will help in this highly uncertain environment. In the medium term, real GDP growth is expected to converge to its 1.5 percent potential. Still, the missed 2020–21 winter season and the sharp contraction in investment during the pandemic caused an estimated permanent income loss of about 3 percent. As in neighboring countries, high inflation will likely persist in 2022 and early 2023 due to still high energy prices but should ease thereafter.
TEXTO PROPIEDAD: https://www.imf.org/en/News/Articles/2022/06/17/imf-executive-board-concludes-2022-article-iv-consultation-with-the-principality-of-andorra
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