IMF Warns Andorra Economy Slowing to 2.1% in 2026 Amid Inflation Spike

The International Monetary Fund has warned that Andorra's economy has entered a sustained slowdown phase, with growth projected to ease from 3.9% in 2025 to 2.1% in 2026. The organisation anticipates further moderation, stabilising around 1.5% by about 2030, which it views as the economy's potential rate. This shift follows two years of stronger-than-expected expansion driven by financial services, construction, and real estate.

External pressures are contributing significantly to the cooling. Disruptions from the conflict in the Middle East, alongside higher energy and import costs, could dampen demand from key trading partners and hit tourism, retail, and restaurants hardest. Andorra's reliance on cross-border infrastructure adds to its vulnerability. Internally, momentum from population inflows and construction booms is fading, while tourism operates near capacity, limiting further gains.

This deceleration coincides with persistent inflation pressures. Prices, which eased in 2025, are expected to hover near 3% in 2026 before aligning closer to European targets. Combined, slower growth and elevated inflation may constrain economic flexibility.

Longer-term risks include population ageing, which will raise pension and healthcare spending, and a shortage of affordable housing that could exacerbate labour shortages. Climate change poses threats to the ski tourism model through warmer temperatures and less snow.

The IMF urges structural reforms to counter these trends, including productivity gains, affordable housing initiatives, and diversification into new sectors. It also sees the EU association agreement as a chance to build resilience, despite transition costs.

Meanwhile, inflation accelerated sharply in April, with the advanced Consumer Price Index (CPI) estimate reaching 4.9% year-on-year, up eight tenths from March's 4.1%. The Statistics Department attributes the rise mainly to higher transport costs, particularly fuels, with a smaller contribution from food and non-alcoholic beverages. Groups such as housing, water, gas, electricity, other fuels, and miscellaneous goods and services exerted a moderating influence.

The monthly advance stood at 1.2%, again led by transport, followed by housing, food, and miscellaneous items. This April figure marks the highest since November 2023, when it hit 5%, though still below the 2022 peak of 7.6% tied to the Ukraine conflict.

Andorra's rate exceeds those in neighbouring countries: Spain's advanced CPI is 3.2%, down two tenths from March, while France's is 2.2%, up five tenths. The advanced indicator covers about 97% of April prices, with the final figure due on 14 May.