Page 9 - economic report 2020

The impact of the pandemic on financial, real estate, professional and technical activities was also
significant, but not as hard as in the case of tourism and commerce, with an estimated reduction
in GVA of 7.5%. In particular, the banking sector saw a 25.3% fall in the aggregate profits of all
the national institutions in 2020. These results were hit by the increased provisions to cover the
effects of the pandemic. Despite the impact of COVID-19, the Andorran financial market showed
a solid position with a 5.46% return on equity, compared with the 2% of the European Banks,
although this figure was lower than the 7.70% in 2019. The solvency ratio was also higher than
the European bank average.

With regard to the public sector, the special measures taken to support economic activity, which
resulted in major increases in public spending, had a positive effect on the economy but were
not enough to offset the whole impact of the health crisis. In parallel, tax revenue saw a steep
downturn, which raised the budgetary deficit of the central government to 4.2% of GDP. In
contrast, the Comú governments increased their surplus by one point, to 1.6% of GDP. All in all,
this made GVA shrink 2.6% in the subsector of public administration, education, health, social and
personal services in 2020, the least drastic of the three main services branches.

Having lived through such a negative year in 2020, the economic prospects for 2021 are positive
but still veiled in great uncertainty. The discovery of several vaccines to fight COVID-19 was a
decisive factor in halting the health crisis. Vaccination enabled the progressive easing of measures
restricting movement and social activity so that the indicators of economic activity started to
turn around, and these should improve over the next few months. As the year progressed and
the percentages of vaccinated increased, the economic forecasts have gradually been revised
upwards.
7
GDP data for the first quarter of 2021 already indicate a change in trend, with a slowdown, as yet
slight, in the rate of fall in activity. Specifically, GDP saw a year-on-year downturn of 9.3% in real
terms (according to the first published estimate), compared with the 10.4% decline noted in the
fourth quarter of 2020.

However, the appearance of more resistant, contagious variants of the virus also raised doubts
about the capacity for economic recovery throughout 2021. Other worrying factors to consider
mid-term are, on the one hand, the timetable for removal of the public policies which, if done too
early, could undermine the recovery, and on the other hand, a potential toughening of financial
conditions if inflation rises faster than expected.

In any case, the trend in the Andorran economy continues to depend greatly on how vaccination
progresses in our neighbouring economies, which would enable the remaining restrictions on
activity to be lifted, especially in tourism and commerce. On a positive note, Spain and France are
among the countries with the best prospects for 2021. One of the key factors in the recovery
will be good management of the NextGenerationEU fund. All in all, the Andorran economy is
expected to see an important revival in GDP in the second half of 2021, although we will have to
wait until 2022 or 2023 to regain pre-pandemic levels of activity.

In this especially difficult context which we have been living through since March 2020, the
Cambra has supported and will continue to support businesses, more than ever, constantly
reading the situation and speaking up for their needs, to try to reverse the decline in activity as
soon as possible and reboot business momentum within this country. The Cambra will continue
to perform its role as an advisory body to the public authorities, responsibly and with the ultimate
goal of fostering competitiveness in Andorra, which is key to the progress and well-being of all
citizens of this country.
Introduction