Andorra's economy: a price gap at the border and what replaced it

How Andorra's output gets counted

Three bodies publish a growth figure for Andorra, and for 2025 they give three different ones. The World Bank series that feeds this catalogue's record puts real growth at 3.9% in 2025 and output at about 4.50 billion United States dollars, or 54,292 dollars a head. The International Monetary Fund mission that visited Andorra la Vella in March 2026 estimated growth for the same year at 2.9% and nominal output at 3,933 million euros. The government's own statistics department, in forecasts published on 9 December 2025, put 2025 growth at 2.8%.

The disagreement is partly a matter of how young the statistics are. Andorra joined the IMF in 2020, and the 2026 mission wrote that recent revisions to headline national accounts figures showed the need to report clearly when and why revisions occur, and that statisticians' posts should be filled as soon as feasible. It also recorded progress: balance of payments data for the year had appeared five months sooner than the year before, and quarterly series were published for the first time. Wikipedia's economy article gives output of 6.00 billion dollars for 2024, which sits well above the IMF's 3,736 million euros for that year.

The per head figures carry the same caution. The IMF gives per capita income of 44,165 euros in 2025, a Gini index of 38.4 in 2024 and 16.4% of the population at risk of poverty in 2024. Adjusted for purchasing power, the World Bank puts output per head at 79,567 dollars in 2025.

What the economy is made of comes from the statistics department's sector accounts, as the IMF reproduced them for 2022.

Wikipedia's economy articles carry an undated statement that tourism accounts for roughly 80% of output. The sector accounts give 28.0% to trade, tourism, transport and communications combined in 2022. The two describe different things: the first is a claim about what the economy depends on, the second a measured division of value added, and only the second comes with a definition.

Why shoppers cross the border into Andorra

Britannica attributes Andorra's retail trade to the lack of customs duties and low or nonexistent taxes, which drew shoppers from across Europe for alcoholic drinks, electronic devices, tobacco and clothing. Wikipedia's economy article describes the same mechanism from the shelf: imported manufactured goods are duty-free and therefore cheaper than in the neighbouring countries.

Trade across the valleys is older than the tax regime. The co-princes ratified the fair of Andorra la Vella in 1371 and again in 1448, tobacco arrived around 1692 along with an import trade, and during the Second World War the country was a smuggling route between Vichy France and Francoist Spain, a period Andorra: history covers. What changed after the 1930s was scale. Wikipedia names two axes of the opening to a market economy, mass tourism and tax exemption, and dates the first steps to the building of the FHASA hydroelectric plant and the founding of the first professional bank in 1930.

The statistics department's count for 2024 shows who arrives. Of the 9,646,656 visitors that year, up 3% on the 9,367,696 of 2023, 4,167,614 stayed at least one night and 5,479,042 came for a few hours and left. Almost half gave shopping as the reason for the trip, 22.4% came for sport and 8.3% to walk in the mountains. The border posts recorded 4,312,664 vehicle entries in 2024. Visitors of nationalities other than Spanish or French rose 12.9% that year to 1,451,780, while Spanish visitors, close to 4.2 million, fell 0.6%.

The legal frame for the price gap is a customs arrangement with the European Union. Negotiations began in 1987, soon after Spain joined the European Community, an agreement to regularise trade was signed in 1989, and a customs union covering industrial products took effect in July 1991. It set duty-free quotas and limits on milk products, tobacco and alcoholic drinks, allowed Andorra to keep its price differences, and gave visitors limited duty-free allowances to carry home. Andorra is treated as a member for trade in manufactured goods and as a non-member for agricultural products.

How the price gap began to close

Wikipedia's economy article records the erosion plainly: Andorra's comparative advantage wore down as the French and Spanish economies opened up, offering wider availability of goods and lower tariffs. The euro area crisis made it sharper, because prices fell in Spain and undercut the reason for the trip.

The statistics department's historical series, published with its December 2025 forecasts, shows the damage. Real output shrank by 1.9% in 2010, grew 0.2% in 2011, and then shrank by 5.0% in 2012 and 3.2% in 2013. The number of salaried employees fell in every one of those four years, by 4.0% in 2012 alone. Growth returned in 2014, at 2.7%.

The state had held the power to tax since the constitution approved on 14 March 1993, which Britannica notes newly empowered the government to raise revenue through taxation. Article 37 of that text obliges every person to contribute to public expenditure "depending on their economic capacity, by means of a just taxing system". Wikipedia's economy article describes public revenue before the reforms as raised through import tariffs.

The reforms came in a cluster. In 2009 the French president Nicolas Sarkozy threatened to abdicate as co-prince if Andorra did not change its banking laws, and the European Union pressed for its tax rules to match the Union's own. A business tax of 10% took effect on 1 January 2012, and a sales tax of 2% followed a year later, raising just over 14 million euros in its first quarter. On 31 May 2013, after a meeting in Paris between the head of government Antoni Martí and the French president François Hollande, Andorra announced that it would legislate for an income tax. Between 2013 and 2016 the principality introduced a personal income tax and a general indirect tax and ended banking secrecy.

The taxes now carry the public accounts. The IMF attributed a higher than expected central government surplus of 2.5% of output in 2025 to strong overperformance in direct taxes, and central government debt fell below 30% of output that year. General government revenue came to 40.7% of output in 2025. The mission also observed that central government budgets had repeatedly underestimated the balance, partly because of uncertainty in the output estimates themselves: the 2026 budget targeted a deficit of 1% of output, and IMF staff forecast a small surplus of about 0.3%.

How snow and summer fill Andorran hotels

The tourism agency, Andorra Turisme SAU, was set up on 21 September 2007, and its stated aim by 2026 had shifted from volume to length of stay. In May 2026 its director general said the country was comfortable at around 9.2 million visitors a year and wanted more of them to stay the night.

Which visitors stay the night

More than 4.3 million tourists spent at least one night in Andorra in 2025, 12.1% more than the year before, and overnight stays passed 12 million for the first time, up 13.1%. About 65% of them came from Spain, close to 2.8 million, and 18% from France, more than 757,000. Of the visitors from Spain, 54% came from Catalonia, 18% from the Valencian Community and 7% from the Madrid region.

Where they slept in 2024 is also counted. Hotels took 856,716 tourists, friends' and relatives' homes almost 151,000, dwellings registered for tourist use 117,882 and tourist apartments 95,650. Escaldes-Engordany recorded a little over 300,000 overnight stays in the statistics department's zones for 2024, Andorra la Vella 250,076 and Encamp 230,539.

Visitors from distant markets have grown from a low base. In the winter season from December 2024 to April 2025, Andorra received 470,000 tourists from outside Spain and France, against about 196,000 a decade earlier, according to the government. Winter visitors from France rose 111% over the same decade to 265,500, and those from Spain rose 32% to close to 1.3 million, from 952,000. Overnight stays in that winter passed 6.2 million, against 4.5 million in the 2014 to 2015 season.

How long the ski season can last

Skiing runs from late November to early April, depending on the weather, and Wikipedia credits it, in figures it attaches to the years since 2007, with over 7 million visitors and about 340 million euros a year, sustaining 2,000 direct and 10,000 indirect jobs. Summer has been gaining. More than 3.7 million visitors came in the summer of 2025, of whom nearly 1.8 million stayed overnight, 15.2% more than in 2024, and the average stay reached 2.9 nights in summer and 3.4 in winter.

Snow is where the exposure lies. Andorra's annual mean temperature rose by 0.18 °C per decade between 1950 and 2015, with summer warming at 0.29 °C per decade, and further warming is expected to reduce snowfall and shorten the season. The IMF's 2026 statement lists more frequent disruption to tourism and infrastructure from rising temperatures and extreme weather among the medium-term risks, alongside temporary closures of the road at Pas de la Casa, which the mission expected to cost the budget in 2026.

What Andorran banks hold without a central bank

Professional banking in Andorra dates from the founding of Banc Agrícol in 1930, followed by Crèdit Andorrà in 1949, Banca Mora in 1952, Banca Cassany in 1957 and SOBANCA in 1960. By the mid-2010s there were five banking groups. Mergers finished in 2022 left three, and an IMF paper completed in February 2024 found all three majority owned by local families, with no foreign bank present.

The IMF paper is mostly about their size. Consolidated banking assets came to 17.5 billion euros at the end of 2022, 5.5 times Andorra's output, so that each bank's consolidated assets exceeded the whole economy. Assets managed for clients, held mostly off the balance sheet, reached 64 billion euros in 2022, about 20 times output, and roughly 70 billion by the third quarter of 2023. Finance contributed 12.4% of output in 2022 and employed about 4% of the labour force. The banks earn a large share of their profits abroad, sometimes a majority, from private banking and asset management in Europe and the Americas.

How the banks insure themselves

Andorra has used the euro since the franc and the peseta were replaced on 31 December 1999, and a monetary agreement signed with the European Union in 2011 and in force from 2012 made it the official currency, with the right to mint Andorran euro coins. There is no central bank. Andorran banks therefore have no national lender and no direct access to European Central Bank refinancing, and the lender of last resort facility introduced in 2022 was judged unlikely to change their habit of holding large buffers as self-insurance.

The buffers are large. In the third quarter of 2023 the system's total capital ratio stood at 16.3% and its liquidity coverage ratio at 200%, against a regulatory minimum of 100%. Deposits supplied 88% of funding at the end of 2022, against about two-thirds for banks in the European Union, and a third of those deposits came from non-residents, mostly tied to private banking clients. The IMF put Andorra's gross international reserves at 397 million euros in 2025, and noted that an additional 60 million euros of reserves had been deposited at the Bank of Spain in 2024.

Who supervises the three banking groups

The Andorran Financial Authority, set up in 1989, supervises every financial institution in the country and had a staff of 25 at the end of 2022. A financial intelligence unit followed in 2000, and an agency for the resolution of banks in 2015, the year Banca Privada d'Andorra failed. The IMF paper read that failure as an illustration of where private banking risk lies, in compliance, reputation and operations, and the authority activated a countercyclical capital buffer of 0.5% from 1 October 2024. The IMF's first Financial Sector Assessment Program for Andorra was being prepared for 2026.

Who does the work in Andorra

The population counted by the statistics department reached 89,165 residents on 31 January 2026, 1,862 more than a year earlier, and 73.4% of them were of working age, between 15 and 64. Wikipedia attributes population growth mainly to young workers taking jobs in tourism, hospitality and services, and the latest arrivals come increasingly from South America: residents of Colombian nationality rose from 1,350 to 1,658 in the year to January 2026, and those of Peruvian nationality from 783 to 965.

Unemployment stood at 1.5% in 2023 and the IMF estimated 1.1% for 2025, describing a labour market at near full employment. Salaried employment grew 10.6% in 2022 and the wage bill 15.3%, after two years in which the number of employees had fallen.

Company ownership is restricted by nationality. Non-citizens may hold no more than 33% of the capital of a privately held company, and according to Wikipedia's politics article only residents of 20 years may own a company outright, a threshold that a proposed law debated in parliament would lower to ten. Nationality itself is slow to acquire, and Andorra: politics sets out what that means for the vote.

The constraints the IMF names in 2026 are housing and age. Labour shortages could worsen if housing affordability does not improve, public investment in affordable housing has found little uptake outside central locations, and the mission recommended a consistent system of permits and fees across the parishes. Ageing will raise spending on pensions and healthcare, the IMF called a comprehensive pension reform overdue, and a two-year plan to raise public sector pay over 2026 and 2027 was already adopted. The social insurance fund those pensions draw on, the CASS, was created in April 1968.

What Andorra still makes for itself

Agriculture was the mainstay of the economy until tourism grew, on land of which about 1.7% is arable. Sheep raising was the principal activity, tobacco was grown and has stayed lucrative, and Britannica adds modest harvests of rye, wheat, potatoes and grapes. Most food is now imported. Agriculture accounted for 0.5% of output in 2022 and industry for 0.9%.

What is manufactured is mainly cigarettes, cigars and furniture. The older industries were iron, smelted in forges similar to the Catalan forge from the twelfth century through the eighteenth, and cloth: a guild of wool workers and weavers was founded in Escaldes-Engordany in 1604 and used the local thermal water. The UNESCO listing of the Madriu-Perafita-Claror valley in 2004 records the vestiges of the Catalan forge alongside its summer settlements and terraced fields, and Andorra: geography covers the valley itself.

Electricity is mostly imported. A hydroelectric plant at Les Escaldes with a capacity of 26.5 megawatts supplies about 40% of consumption, by Wikipedia's undated account, and the rest comes from Spain. The plant's origin is the FHASA works at Encamp, whose construction in the early 1930s set off the strikes of 1933.

Goods trade is small and lumpy. The statistics department's series shows goods exports up 160% in 2022 and down 38% in 2023, and its forecasters leave out two exceptional export shipments, in February 2022 and March 2023, so as not to distort the trend. In 2019, 71% of imported goods came from Spain and 17% from France. The balance of payments looks very different once services are included: the IMF put exports of goods and services at 90.0% of output in 2025, imports at 74.3% and the current account surplus at 16%.

What the European agreement would change for Andorran firms

The customs union of 1991 covers industrial goods only. The association agreement with the European Union, negotiated jointly with San Marino, would bring Andorra into the internal market under common rules, with progressive access for financial services. The Council of the European Union authorised its signature and provisional application in July 2026, and the ratification route, including the consultative referendum the government plans, is set out in Andorra: politics.

For the banks the agreement means a transition of 15 years in which to bring banking, insurance, asset management and securities law into line with the Union's. It also opens passporting, so Andorran banks could sell into the single market at lower compliance cost, and European banks could enter Andorra on the same terms, which the IMF paper expected could change the domestic sector's structure substantially. The paper pointed to Liechtenstein, which joined the European Economic Area in 1995 and whose banks managed 411 billion Swiss francs in 2022. Telecommunications and tobacco also have transitional periods, and in 2010 the state operator, Andorra Telecom, had already connected every home and business to fibre.

The IMF treats approval as an upside risk that would widen the sources of growth, with short-term transition costs, including more public service workers to adopt the rules. Its baseline, without the agreement, has growth slowing to 2.3% in 2026 and converging on 1.5% by 2030 as immigration, construction and tourism growth ease. The government's own plan for innovation and diversification, presented before the 2026 mission, rests on four pillars: health, sports, construction and technology.