Page 9 - economic report 2019

sectors shows that growth in tertiary activities was fairly generalised. Specifically, the subsector
of financial, real estate, professional and technical activities grew most (2%), after two years of
decline. Remember that this branch of services is the most important in the economy, with 34%
of total GVA.

The trend in the banking sector, in particular, was favourable, with increases in gross lending
to customers and in deposits, interrupting the decline of recent years. This meant that profits
increased for the first time in six years and return on equity (ROE) rose to 7.7% in 2019.

For their part, the activities of commerce, hotels and catering, transport, information and
communications, which also make a significant contribution to Andorran GVA (31%), advanced at
a rate of 1.9%, similar to 2018. This favourable trend was possible despite the numbers of tourists
falling by 1.1%, and a loss of momentum in the main factors encouraging residents’ consumption
(jobs and wages).

In fact, in the particular case of the tourism sector, there are some connected indicators that
reflect a loss of momentum in activity compared with 2018, such as falling numbers of total
overnight stays, numbers of accommodations and beds, and the slower rate of job creation in
hotels and catering. However, our surveys in 2019 still provide a favourable outlook on the hotel
sector, benefiting from the positive behaviour in entries of tourists, with a global assessment of
business activity similar to 2018 and increases in turnover and investment.

In parallel, commerce saw slight signs of improvement, with faster growth in the number of
establishments and employees, although levels of activity were still very quiet. This slight recovery
is also reflected in our surveys, which show an improvement in business activity, a small decline 7
in sales and an upturn in investment.

The public sector’s contribution to activity in 2019 was another positive year, if less so than the
previous year, in a context of healthy budgeting that allowed a gentle increase in spending by
both central and local governments. Its actions resulted in modest growth in operating costs and
a notable increase in real investment, although these were both lower than in 2018. In parallel, the
tax burden fell two tenths to 25%, after reaching a historic high in 2018 (25.2%). As a result, the
central government saw a small budget surplus of 0.1% of GDP, combined with a 0.6% surplus in
the Comú governments. Altogether, this resulted in a slowdown in GVA growth for the subsector
of Public administrations, education, health, social and personal services, from 3.6% to 1.6% in
2019.

The economic prospects for 2020 have been determined by the evolution of the Covid 19
pandemic, affecting the whole world. Its major impact on public health impelled the Andorran
Government, in line with neighbouring European countries, to adopt various measures from 11
March to deal with the pandemic and protect the health of its citizens, such as locking down
the population, restricting movement, closing educational centres and other establishments and
limiting capacities and meetings, among others, to stop the chains of infection. In many countries
around the world, similar measures have been taken with significantly negative impacts on world
GDP this year, so the IMF is expecting the worst global recession since the Great Depression of
the 1930s.

Looking forward, the Andorran economy will continue to be influenced by the impact of the
pandemic on the world economy and, above all, our European neighbours. Note that Spain and
France are among the countries with the most negative prospects for this year (GDP declining
by more than -12%, according to the IMF), considering the major importance of tourism for their
Introduction
respective economies, among other reasons. This is the same for Andorra, although forecasts