Principality of Andorra: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Principality of Andorra

The 2023 Article IV Consultation discusses that The Andorra economy is showing resilience and is growing slightly above its long-term potential despite external headwinds. Over the medium-term, the economy is projected to slow to its lower long-term potential level estimated at 1.5 percent, comparable to average growth in the euro area. Risks to the outlook are balanced and the economy has solid macroeconomic buffers, but there are concerns about emerging structural bottlenecks, such as the lack of affordable housing, labor shortages, and vulnerability to climate change. After a strong growth rebound, structural reforms can raise potential growth and address emerging fault lines. The authorities should maintain tight fiscal policy as long as growth remains close to potential and price pressures are persistent. However, there is fiscal space for higher public investment to support potential growth and mitigate structural bottlenecks. Pension system reform is overdue to secure its long-term sustainability. Ambitious structural reforms to diversify the economy and address emerging bottlenecks are key. These include removing remaining constraints on investment, improving housing affordability, retaining talent, and fostering digitalization and economic efficiency.