San Marino: Economic Outline

Economic Indicators

San Marino's economy has failed to fully recover since the financial crisis of 2008. Furthermore, deep-rooted weaknesses in the banking sector - the backbone of the economy - coupled with disrupted credit supply have stalled growth in recent years. The COVID-19 pandemic has caused the San Marino economy to collapse, with GDP estimated at -6.8% in 2020. Nevertheless, GDP rebounded by 14.2% in 2021 and continued on a positive path in 2022 (+5% – IMF). Despite historic highs in previous years, growth decelerated in 2023 (+2.2%), particularly evident in the manufacturing sector, which had been a pivotal driver during 2021-2022. This slowdown was attributed to subdued external demand and increased expenses. However, manufacturing exports managed to maintain stability at elevated levels. Mirroring Italy's trajectory, the service sector exhibited resilience, while the labor market retained its tightness, nearing full employment. IMF projections for 2024 suggest a modest recovery with approximately 1% growth, yet concerns linger due to uncertainties stemming from the unpredictable international landscape, dampening the overall growth outlook.

San Marino's economy, which is akin to an offshore banking model, collapsed following the introduction of anti-tax measures by Italy and against a backdrop of weak external demand. San Marino's cumulative GDP recession since 2008 is the second-worst in Europe after Greece. While the country was finally removed from the blacklist of tax havens compiled by Italy in 2014, macroeconomic and financial soundness indicators have not improved significantly since that date. The country's oversized banking sector has dwindled and been left with low liquidity as many non-residents withdrew their money. The Republic of San Marino was under strong international pressure to strengthen cooperation with foreign tax authorities and render its banking system more transparent. Rebalancing of public accounts and the fight against money laundering and terrorist financing remain high in the country's priorities. The latest fiscal data revealed a surplus of 1.1% of GDP for the general government balance in 2022. Fitch projected a deficit of 1.5% of GDP in 2023, primarily due to a one-time investment in office space. The government has responsibly preserved inflation revenue windfalls and judiciously indexed public sector wages and pensions slightly below inflation, effectively mitigating spending pressures. However, San Marino, as a euroized small open economy, still faces lingering vulnerabilities in its financial sector and possesses limited fiscal buffers. The deficit is anticipated to narrow to 0.3% in 2024, transitioning to a small surplus of 0.1% in 2025 as economic growth gains momentum (Fitch). Debt dynamics have seen an improvement, propelled by increased nominal GDP and robust fiscal performance. Fitch anticipates that public debt will drop below 70% of GDP by the conclusion of 2023, marking a decline from its peak of 76.6% at the end of 2021, and is projected to dip below 60% by the end of 2027. A significant portion of government debt carries notably low interest rates and boasts extended maturities. Consequently, the overall interest burden remains minimal, even after the Eurobond issuance, with interest expenses relative to revenues forecasted at 5.8% in 2024. According to official data, inflation stood at 5.9% in the last quarter of 2023. Fitch anticipates a gradual decline in inflation to 4.2% in 2024 and further to 2.5% in 2025, aided by diminishing inflation rates in Italy and restrained wage growth. As a small, open economy, a significant portion of inflation is imported, yet increases in energy prices have remained notably lower compared to other European nations.

San Marino has a high standard of living and offers several social benefits, which contribute to the good living conditions of the country's inhabitants. Between 2018 and 2022, San Marino's labor force experienced a notable growth of +4.8%. Specifically, the number of employees surged by +8.9%, rising from 19,375 in 2018 to 21,091 in 2022. Concurrently, the total unemployed decreased significantly by -36.1%, dropping from 1,336 in 2018 to 854 in 2022. However, the count of self-employed workers exhibited a steady decline over the five-year period, diminishing by -9.4% from 1,755 in 2018 to 1,590 in 2022. According to data from the national office of statistics, the unemployment rate stood at 2.8% at the end of 2023.

Monetary Indicators	2016	2017	2018	2019	2020
Euro (EUR) - Average Annual Exchange Rate For 1 GHS	0.23	0.20	0.18	0.17	0.16

Source: World Bank - Latest available data.

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Latest Update: May 2024