Andorra's Economy Grows 2.2% in H1 2025 Amid Slowing Pace

The Chamber of Commerce, Industry and Services of Andorra (CCIS) released its 57th business climate survey on Monday, covering the first half of 2025. The results confirm a solid economic performance despite moderating growth from 2024 levels, with construction and services poised to drive activity into 2026, albeit at a slowing pace amid domestic constraints and global uncertainties.

Real GDP rose 2.2% year-on-year in Q2 2025, a step down from last year's peaks but exceeding the 2018-2019 average of 1.8%. This resilience stems from robust domestic demand fuelled by population increases, a strong labour market with over 7,100 net jobs added since 2019, moderating inflation, falling interest rates, and rising household incomes supporting consumption and investment. Unemployment hit historic lows, while record tourism bolstered the picture: overnight visitors topped two million for the first time in a semester, with 6.3 million total stays—the highest on record. Spring showed gains, including 19.8% more visitors and 20.5% additional hotel nights in May and June, signalling year-round appeal and desesasonalisation.

Construction remained the top performer, boosted by easier financing and strong residential demand, though early signs of slowdown emerged due to labour shortages and limited buildable land amid urban planning reviews. Services contributed significantly, led by finance, real estate, professional activities, education, and health. Tourist services entered a more sustainable phase at elevated levels post-pandemic. Retail stagnated amid weak volumes, subdued day-tripper spending, e-commerce pressures, and shifting habits, while industry weakened despite lower energy costs.

Businesses highlighted internal challenges as key drags: rising supply and material costs affected 43.6% of firms, operating expenses worried 31.4%, and skilled worker shortages hit hardest in construction (56.3% reporting vacancies) and hospitality (50%). CCIS President Josep M. Mas noted around 1,700 unfilled jobs, exacerbated by Schengen permit issues tied to EU Entry/Exit rules and housing access barriers. He advocated public-private housing partnerships, rental market deregulation, and first-home guarantee programmes to ease pressures, dismissing low wages as the core issue amid competitive poaching. Longer-term risks include affordability crises, high living costs, and strains on infrastructure, public services, healthcare, and transport.

Outlooks for late 2025 remain upbeat, with growth forecast above eurozone norms on tourism, consumption, and labour strength. Construction and services should lead, though tourism expectations have softened from prior years toward normalisation. For 2026, expansion will continue but decelerate progressively. External risks linger despite US-EU tariff pacts: geopolitical strains, protectionism threats, and eurozone softness could stoke inflation, rattle markets, and disrupt supply chains, indirectly curbing Andorran momentum.

The CCIS calls for innovation, diversification, and a quality-driven sustainable tourism model to lift productivity and competitiveness.