Andorra vs. Spain

Andorra has a developed economy and a free market, with per capita income above the European average and above the level of its neighbors, Spain and France. The country has developed a sophisticated infrastructure including a one-of-a-kind micro-fiber-optic network for the entire country. Tourism, retail sales, and finance comprise more than three-quarters of GDP. Duty-free shopping for some products and the country's summer and winter resorts attract millions of visitors annually. Andorra uses the euro and is effectively subject to the monetary policy of the European Central Bank. Andorra's comparative advantage as a tax haven eroded when the borders of neighboring France and Spain opened and the government eased bank secrecy laws under pressure from the EU and OECD.

Agricultural production is limited - only about 5% of the land is arable - and most food has to be imported, making the economy vulnerable to changes in fuel and food prices. The principal livestock is sheep. Manufacturing output and exports consist mainly of perfumes and cosmetic products, products of the printing industry, electrical machinery and equipment, clothing, tobacco products, and furniture. Andorra is a member of the EU Customs Union and is treated as an EU member for trade in manufactured goods (no tariffs) and as a non-EU member for agricultural products.

To provide incentives for growth and diversification in the economy, the Andorran government began sweeping economic reforms in 2006. The Parliament approved three laws to complement the first phase of economic openness: on companies (October 2007), on business accounting (December 2007), and on foreign investment (April 2008 and June 2012). From 2011 to 2015, the Parliament also approved direct taxes in the form of taxes on corporations, on individual incomes of residents and non-residents, and on capital gains, savings, and economic activities. These regulations aim to establish a transparent, modern, and internationally comparable regulatory framework, in order to attract foreign investment and businesses that offer higher value added.

After a prolonged recession that began in 2008 in the wake of the global financial crisis, Spain marked the fourth full year of positive economic growth in 2017, with economic activity surpassing its pre-crisis peak, largely because of increased private consumption. The financial crisis of 2008 broke 16 consecutive years of economic growth for Spain, leading to an economic contraction that lasted until late 2013. In that year, the government successfully shored up its struggling banking sector - heavily exposed to the collapse of Spain's real estate boom - with the help of an EU-funded restructuring and recapitalization program.

Until 2014, contraction in bank lending, fiscal austerity, and high unemployment constrained domestic consumption and investment. The unemployment rate rose from a low of about 8% in 2007 to more than 26% in 2013, but labor reforms prompted a modest reduction to 16.4% in 2017. High unemployment strained Spain's public finances, as spending on social benefits increased while tax revenues fell. Spain's budget deficit peaked at 11.4% of GDP in 2010, but Spain gradually reduced the deficit to about 3.3% of GDP in 2017. Public debt has increased substantially - from 60.1% of GDP in 2010 to nearly 96.7% in 2017.

Strong export growth helped bring Spain's current account into surplus in 2013 for the first time since 1986 and sustain Spain's economic growth. Increasing labor productivity and an internal devaluation resulting from moderating labor costs and lower inflation have improved Spain's export competitiveness and generated foreign investor interest in the economy, restoring FDI flows.

In 2017, the Spanish Government's minority status constrained its ability to implement controversial labor, pension, health care, tax, and education reforms. The European Commission expects the government to meet its 2017 budget deficit target and anticipates that expected economic growth in 2018 will help the government meet its deficit target. Spain's borrowing costs are dramatically lower since their peak in mid-2012, and increased economic activity has generated a modest level of inflation, at 2% in 2017.