Presentation of the 2022 Economic Report
(September 12, 2023)
Most Illustrious Mr. Xavier Espot, Head of Government, distinguished authorities,
Ladies and gentlemen, We welcome you to this presentation of the annual economic report of the Chamber of Commerce, Industry and Services of Andorra; to all of you present here and also to the audience that follows us online on the Chamber's YouTube channel.
This publication, which this year reaches its twenty-eighth edition, thoroughly reviews the most outstanding economic events of the year 2022, both in terms of the external context and in Andorra, with a specific section for each of the main sectors of the economy. And the report also gives an insight into the prospects for 2023.
After a historic drop in global economic activity in 2020 due to the effects of covid-19, the outbreak of war in Ukraine in February 2022 triggered a severe energy and supply crisis, at a time when the economy was in full recovery. This fact ended up generating high global inflation and a consequent rise in interest rates around the world. This led to a slowdown in economic activity last year.
Among the developed economies, the Eurozone showed strength resilient, with GDP growth above that of the United States, thanks to favorable labor market developments and support from both European Next Generation funds and fiscal plans approved by governments to help families and businesses cope with inflation.
In this context, the Andorran economy consolidated its recovery during the year 2022, with real GDP growth of 8.8%, a rate five tenths higher than that recorded in 2021. This strong expansionary rate, comparable to that observed in the years before the financial crisis, led that in terms of volume the GDP level of 2019, prior to the pandemic, was exceeded by 4.6%.
Compared to the international one, the dynamism of the Andorran economy during 2022 was considerably more intense than that of Spain, France and that of the euro zone as a whole. In fact, the Principality was the second fastest growing European country, after Ireland.
The good performance of the economy was reflected in the positive evolution of the vast majority of activity and demand indicators. In particular, double-digit increases in the number of visitors, imports and industrial vehicle registrations stand out. At the same time, there was a clear improvement in the labor market situation, with an increase in the number of employed and a sharp reduction in the unemployed.
Economic growth in 2022 was driven by all major sectors, albeit with significant differences.
It highlights, first of all, the dynamism shown by construction, which despite moderating its growth compared to 2021, maintained a pace high expansion This positive trajectory was mainly concentrated in the housing segment, although public investment in aggregate terms - corresponding to the Government and commons as a whole - also increased for the second consecutive year.
As for industry, its evolution was moderately favorable, with an improvement that was reflected in an increase in the number of employees in the sector. Likewise, Chamber surveys show an increase in turnover, although this growth was lower than in 2021.
Within services, the good performance in this area was led by activities linked to tourism, driven to a large extent by the intense recovery in the number of visitors; specifically, they increased by 55%, up to 8.4 million. In this way, pre-pandemic records were surpassed. It can therefore be said that tourism was the main driver of the Andorran economy in 2022.
Trade also followed a pattern of clear recovery. The positive evolution was highlighted by the increase in the number of establishments, the number of employees and the consumption of electrical energy. This positive trend was also reflected in a very intense growth in the volume of imports, although it must be taken into account that part of the increase in trade flows is explained by the rise in prices.
Along the same lines, the financial sector experienced positive behavior. In particular, Andorran banking closed the 2022 financial year with a 16.3% increase in the aggregate profits of all entities in the country, favored by economic dynamism and the rise in interest rates.
This increase was also accompanied by a 3.6% increase in the volume of managed customer resources. The improvement in the interest margin due to the rise in interest rates helped raise the profitability ratio of the banking sector's own resources. At the same time, the non-performing loan ratio continued its downward trend and some good ones were preserved levels of solvency and liquidity, above the average of European banks.
2022 was a year marked by the corporate acquisitions of BancSabadell d'Andorra by MoraBanc and Vall Banc by Creand Crèdit Andorrà. The concentration of Andorran banking and the increase in the average size of the entities must result in a more efficient system, more internationally competitive and with greater ability to respond to customers.
In the area of the public sector, overcoming the pandemic allowed the Government to continue reducing public spending that began in 2021.
At the same time, tax collection rose sharply, due to both economic growth and the inflationary process. As a result, the General Administration went from a deficit situation in 2021 to obtaining a budget surplus of 2.3% of GDP in 2022. Along the same lines, the communes expanded their surplus by four tenths, up to 0 .9% of GDP.
In terms of fiscal pressure, it is estimated that in 2022 it increased by 2.2 points, up to 26.9% of GDP, the highest value in the historical series. This upward trend was driven in part by the inflationary scenario, in addition to the entry into force of some new tax figures.
Finally, last year was a good year in terms of foreign investment, but without reaching the historical records of 2021, when there was a very important revival after projects were stopped in 2020 due to the pandemic. In total, nine hundred and twenty-five investment transactions were formalized – the maximum value of the series available – with an investment volume of nearly 389 million euros. This figure represents 12.2% of GDP, the second highest figure since the entry into force of the law and much higher than the pre-pandemic figures.
Having reviewed the economic evolution of the 2022 financial year, it is now time to focus on the current economic context and future prospects.
2023 will be a year of weak economic growth on a global scale. In the euro zone, a possible drop in GDP in the second half of the year cannot be ruled out, a decline conditioned by the German economy. And as far as our neighbors are concerned, the forecasts point to weak growth in the French economy -but ruling out recession-, while the prospects for the Spanish economy are better, with a GDP increase of over 2% this year.
In this context, the Andorran economy is moderating growth during 2023 as a result of the deterioration of the global situation and the normalization of economic growth, once pre-pandemic activity levels have been recovered.
Cumulatively up to the month of July, the number of visitors has registered a significant year-on-year increase of nearly 15% and imports have increased by 8%. In both cases, however, progress has been less intense than the growth recorded in the same period last year. Within imports, the drop in construction materials (in value) and fuel (in litres) also stands out. Other indicators that suggest a slowdown in activity are the year-on-year declines in passenger car registrations and the demand for electricity.
The progressive slowdown in economic growth is also beginning to be noticed in a moderation in the pace of job creation, although within records that can still be considered very positive. Thus, the number of employees has increased by 6.2% year-on-year until May, a growth that continues to be led by the hotel industry and, to a lesser extent, by trade. At the same time, the number of people looking for work continued to fall until July.
Similarly, the GDP data for the first quarter of 2023 show a good performance of the Andorran economy, but with more moderate progress than in previous quarters.
Looking ahead to the coming months, one of the main concerns is the loss of dynamism in consumption, due to the impact on demand of inflation and the increase in interest rates, as well as the weakening of the external context. These factors will continue to condition the progress of the Andorran economy during the second half of 2023 and will limit its growth capacity. The difficulties in finding both basic and skilled labor will be another element of restriction.
Conversely, the lever with a greater contribution to growth will continue to be tourism. And on a positive note, it must be borne in mind that the evolution of neighboring economies - and in particular Spain - will continue to be an important support factor for Andorra.
All in all, it indicates that Andorran economic growth will be positive in 2023, but lower than the growth of the previous year.
However, the degree of uncertainty of the economic forecasts for 2023 and 2024 is particularly high and will depend, mainly, on how prices evolve. And it will also depend on who point the European Central Bank will raise interest rates to anchor price expectations at around 2%, at the same time preventing financial turbulence from occurring.
Having examined the current economic situation, I would like to share some ideas and reflections on the future challenges of our country.
Each new presentation of the Report clearly shows the change in direction of the current world. Uncertainty has never been as great as it is now. "Forecasting is very difficult, especially about the future", says a phrase full of irony attributed to the father of quantum physics, Niels Bohr. However, the reality we will face tomorrow will be, in part, the result of the decisions we make today. And in this sense, we can say that the future of the country is in our hands, both from a business and social point of view.
For this reason, I want to list the great challenges that lie ahead of us and that will shape the Andorra of tomorrow:
First of all, after overcoming the pandemic, the tourism sector is being a great driver of economic growth, and is consolidating its key role in the socio-economic fabric of the country. To address the challenges of the tourism model, unity is needed criterion between the public and private spheres. At the same time, a vision must be shared growth strategy in terms of the volume and quality of the offer, and also of the experiences that must make our destination attractive. It is in this direction that the signing of the collaboration agreement between the Chamber and thirteen associations and companies in the tourism sector is framed. The Private Tourism Sector Council is the result of a debate initiative on the future of the sector that has been promoted by the Chamber with the participation of the Andorran Business Confederation and all the associations and companies actively involved in the project. This body wants to become a key instrument of cooperation and consensus in tourism strategy and public policies. From unity and transversal work, it is intended to deal with a joint action in the global context, marked by profound changes in consumer travel patterns, the opportunities derived of digitalisation, mobility, demographic change, climate change and the very sustainability of the model.
From here I want to thank the Government and, in particular the Minister of Tourism and Commerce, a first step towards a more public-private collaboration committed, with the opening of Andorra Tourism to the participation of the private sector, incorporating the vision of business leaders and associations integrated into the Council of the Private Sector of Tourism.
The second challenge focuses on commerce, which despite being one of the sectors that stands out for its growth during the year 2022 - as we have pointed out for years - is facing an important transformation, as a result of a change in habits of the consumer The growth of electronic commerce, the loss of the differential value of the product, a less important weight of trade in the overall spending of the tourist and a lower purchasing power of the average customer, are key factors that must be taken into account in the activity of the sector . To attract our visitors we must improve the shopping experience and omnichannel. The physical store and the web must be perceived as a single company.
To respond to all these challenges in the sector, it is necessary to put a thread on the needle in the Strategic Trade Plan, a plan that was approved in January 2022 and that we highlight the importance of developing and implementing it with speed As part of this plan, the Chamber has begun work on the creation of the trade observatory, evaluating and collecting the main data on commercial activity and its specific weight in general economic activity. The purpose is to allow reflection on the evolution and perspectives of the sector.
Thirdly, I would like to stress the importance of favoring an immigration and labor framework that allows the attraction and management of the best talent, a system that commits to stability in the workplace and adapting to circumstances specific to the activity sectors. The high current lack of personnel requires working on an immigration strategy that responds more quickly and effectively to the needs of the company. In this sense, the continuous dialogue between the parties involved (employers, unions, the Government and society as a whole) is the way to agree on the appropriate actions.
I cannot fail to mention the problem of housing. To address this problem, it is necessary to implement policies that promote housing and access to rent. We positively value the actions that are already being carried out by the public administrations, but a close collaboration must be established between the Government, the communes, companies, civil society and the sectors directly involved in order to find medium and long term.
It is important to define which country model we want and how many people can live in Andorra to know the real needs of the sector.
The fourth challenge affects the Administration, which must be better prepared for the challenges of an increasingly dynamic and changing world. Companies need urgent administrative simplification, a real shortening of the Administration's response times and more facilities to create companies.
Electronic administration and the simplification of administrative processes are an unavoidable tool that the Chamber has been asking for for years. We must get the Administration to become a true ally of the company.
Even so, I would like to take this opportunity to congratulate the Government for its willingness to adhere to the Kyoto Convention to speed up and digitize customs procedures, substantially reducing the paper format.
Fifth, it is necessary to promote programs to modernize and make them more efficient the country's companies, and it is also necessary to respond to the challenges of the next decade We understand that there is no single solution, but we must create specific programs for different sectors. Training, the streamlining of procedures, support for SMEs and the self-employed and tax incentives are some of the mechanisms to stimulate national economic growth.
Sixth challenge: the Chamber recalls that it is necessary to maintain a level of fiscal pressure competitive with our environment, despite the pressure on public finances linked to the cost of economic support and activity stimulation programs.
To grow in a global environment, the fiscal pressure cannot go beyond 25%, and as I mentioned earlier, in 2022 we exceeded that threshold.
The proper management of public expenditure involves finding a balance between the collection of taxes necessary to finance government functions and not imposing an excessive tax burden, a burden that can have negative consequences on economic activity and social welfare.
Seventhly, it is clear that there is no turning back in digitization. Digital is the present. Digitization facilitates and automates business, streamlines procedures and opens up a series of unimaginable options for companies. Companies that have not been digitized in a couple of years will be at a disadvantage and will be out of the market. Andorra Digital, with the support of Andorra Business and the Chamber, launched last year the company digitization program in three steps: assessment, personalized and subsidized advice, and implementation of digital solutions, with a plan of financing adapted to each step. This program is an opportunity for all companies, regardless of their size. We encourage the business fabric to take advantage of the advantage that this program offers them.
The circular economy and sustainability are the eighth challenge I list, a global challenge and also a national challenge. We must promote the circular economy by creating new business models based on the reuse and recovery of materials as a fundamental tool to achieve sustainability. However, it must be done following a schedule adapted to the possibilities of the companies.
Sustainable policies and practices must be adopted in all areas of the economy, civil society and the life of the individual citizen, to guarantee a prosperous and equitable future for current and future generations.
For this reason, initial collaboration with the sector is essential business, working together in the referential framework and adaptation to the new international parameters.
The ninth challenge has to do with energy, a fundamental resource that drives economic activities and human activity in general. Government regulations and policies in this area have a direct impact on the profitability and viability of companies in the sector.
The Chamber has created an energy commission to work together any measure that must be taken related to this sector and also to encourage private investment.
At the same time, it is necessary to commit decisively to the energy transition and promote renewable energies more to reduce energy dependence on the outside.
Regarding the negotiation of the Association Agreement with the EU that is going on start in 2015 (the tenth challenge), the Government has already announced the holding of a referendum to approve or reject it at the end of next year. As stated by the Government, the intention of this Agreement is to complete a process of approval and economic opening of the country to the outside world. The aim is to access the single market and European programs. The Agreement will lead to the adoption of a large part of the Community flow that should allow a balanced diversification and development of the country's economy. In the course of the negotiations, the Chamber continues to think that it is necessary to reinforce the specificities of the country mainly in matters of security and public order, a condition that is of vital importance for the future of Andorra. Likewise, we request access to the European Central Bank to provide liquidity to the Andorran bank Also, access to European programs that help make our companies more competitive - such as the Next Generation funds -, and that companies can benefit from financing opportunities and cooperation in various projects with other countries of the Union European Diversification in innovation must be a real development opportunity for Andorran companies.
Finally, it is necessary to include in the text of the Agreement that the European Union will contribute financially to de-enclave infrastructures and will collaborate with neighboring states with this objective.
The House delegation that traveled to Brussels in the month of last July he transmitted this message to the European institutions and to the permanent delegations of Spain and France.
Negotiations will accelerate in the coming months, although we believe there is no need to rush. I would like to take this opportunity to thank the Government for inviting the rest of the political forces to join the negotiating table, but at the same time it should be remembered that the Chamber already asked the Government and the Vice-President of the European Commission, Maroš Šefčovič, that the business sector to contribute actively in the conversations, which provide us with more useful and transparent information to deepen the analysis of the community flow, but above all in the background strategy of the negotiation.
In conclusion, I would like to say that in order to promote the transformation of Andorra and face the present and future challenges and needs, it is necessary to define a country strategy for the next 20-30 years, with a concretization for five years correlative to the potential signature of the Association Agreement. Milestones, policies and actions must be formulated to guide development and progress in different areas and with the broadest cross-cutting consensus possible, involving civil society, the private sector and other institutions. The collaboration and participation of various actors is critical to the success of any long-term plan.
To conclude, I want to reiterate that in an increasingly demanding and competitive scenario, it is more important than ever that we work together, fostering close public-private collaboration to address the country's challenges. The meetings that the Chamber has started to set up with different ministries, with the Trade Union and the parliamentary groups are going in this direction.
Very Illustrious Mr. Xavier Espot, in the Economic Report that every year presents the House, the strengths and weaknesses of the our economy The Chamber and companies are ready to face the country's new challenges and be part of the debate and joint work.
I thank you for your presence at this event and I reiterate that you can count on the Chamber to promote plans and programs that improve the competitiveness of our companies, and I also want to express to you that we are committed to the country as it is the Government of Andorra.
Many thanks to everyone.
Josep M. Mas Torres
President CCIS