Page 7 - economic report 2020

Introduction

This twenty-sixth edition of the annual Economic Report of Andorra has been prepared in what
is still a fragile context for business and the national economy. The pandemic caused by the
COVID-19 virus, which was declared in March 2020, marked a turning point that year in the
economic trends of all countries within our environment, including Andorra. The health crisis led
to historic falls in business activity throughout the world, which has partly begun to pick up again
in 2021, although doubts remain about the strength and continuity of the recovery.

This report offers a detailed analysis of the economic events that shaped the trends in 2020, both
inside and outside Andorra, with a special focus on sectoral trends, and provides an overview of
economic prospects for 2021. Among the notable events in the last year, besides the pandemic,
was Andorra becoming the 190th member of the International Monetary Fund, raising our
country’s credibility and offering a safety net when exceptional times lead to a lack of funding in
the market.

On a global scale, 2020 will be remembered as the worst economic year in peacetime history, due
to the COVID-19 pandemic. The health emergency paralysed the global economy for weeks and
caused the greatest economic losses since World War II. Faced with this situation, the measures
taken by governments and economic institutions to mitigate the impact of the crisis were rapid
and robust, attenuating falls in income, allowing moratoriums on payments, guaranteeing ample
liquidity and favourable access to credit, and anchoring the low interest rates.
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The impact of the crisis was more extensive in economies that are based predominantly on
services, especially activities that require greater social contact, such as tourism, restaurants,
commerce and leisure. This explains why the GDP of advanced economies shrank more than that
of developing countries.

Nor was the impact of the pandemic uniform among the developed countries. The Eurozone
was the most affected region, with a 6.5% average decline in GDP in 2020, contrasting with the
3.5% decline in the USA, which implemented less restrictive measures to contain the spread of
the virus and more robust policies to combat the economic effects of the crisis. Note that the
measures adopted to deal with the health emergency caused the public deficit of the Eurozone to
rise from 0.5% of GDP in 2019 to 7.2% in 2020.

Within the Eurozone, the economies of Spain and France are among those most impacted by
the pandemic crisis, with falls in GDP of 10.8% and 7.9%, respectively, largely due to the greater
influence of tourism on GDP.

The trend in the Andorran economy followed a similar profile to that of neighbouring countries,
although the downturn in activity was steeper due to the relatively higher importance of tertiary
activities to the economy, especially commerce and tourism. In 2020, Andorran GDP shrank
12% in real terms, a downturn that ends six consecutive years of upward growth. In parallel, the
Andorran population has continued to grow (0.6%), so per capita GDP in nominal terms fell to
€32,145.

The supply and demand shock caused by the COVID-19 pandemic was reflected in the negative
trend in the great majority of economic indicators. In particular, the dramatic declines in numbers
of visitors, electricity consumption, car and industrial vehicle registrations, imports of capital
Introduction
goods and building materials, and public investment. The only exceptions to this negative trend