Andorra

This report does not constitute a rating action. Overview Institutional and economic profile Flexibility and performance profile The secondary effects of the Russia Ukraine conflict will hit Andorra's small open services economy with a lag, in 2023, after two consecutive years of buoyant growth. Despite a slight deterioration of the budgetary performance in 2023, the general government debt-to-GDP ratio remains on a downward path. --The full effects of rising inflation, tightening credit conditions, and the terms-of-trade shock via elevated hydrocarbon prices will drive a GDP slowdown next year of about 1%. --We assess contingent liabilities from Andorra's large financial sector (with financial assets of about 6x GDP) to be a risk to financial stability and the economy, albeit a manageable

...Andorra's post-pandemic recovery since 2021 reflects buoyant tourism, boosted by recovering external demand as well as fiscal support in the form of cost-of-living support measures. Commencing 2023, we expect the economy to slow, as the fallout from the war in Ukraine pushes up energy and commodity prices and weighs on consumer and business confidence. The downturn will dent government revenue and could put pressure on government spending. We anticipate this will lead to a deterioration of the budget balance in 2023, but it will do so from a position of relative fiscal strength. Going forward, we expect general government debt to GDP to remain on a downward path, and significant government buffers to provide leeway to mitigate the shock....

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