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Montenegro/October 2015

Montenegro’s economy – a small and very open market – is characterized by extraordinary flexibility but also by great exposure to external shocks. Montenegro is highly dependent on tourism and Foreign Direct Investments. Additionally, it suffers from relatively high public debt, unprofitable state companies, high levels of NPLs, and ongoing bank deleveraging. It faces challenges due to an aging population and low employment.

However, despite all these shortcomings, the size of the market is such that even a small number of large projects has the ability to make a great impact on the overall economy. During the past two years, the Montenegrin Government has implemented significant fiscal consolidation measures, but it has also committed to a hefty highway investment project. The project’s first phase is budgeted to cost EUR 809 million, which is equal to 24% of the 2013 GDP.

In 2014, most of the statistical indicators recorded an upward trend of GDP growth. According to Monstat data, the real GDP growth amounted to 1.5% and 0.3% in Q 1 and Q2 in 2014, respectively. Montenegro ended the fiscal 2014 with the lowest deficit in the region of Southeast Europe.

The GDP annual growth rate in Montenegro averaged 2.26 % in the period between 2001 and 2015, reaching an all-time high of 10.70 % in the fourth quarter of 2007 and a record low of -5.70 % in the fourth quarter of 2009. This confirms the vulnerability of Montenegro’s economy and its dependence on external factors as 2008 and 2009 were years during which the global financial crisis culminated.

The Montenegrin economy continues to grow against a challenging background. Real GDP rebounded by 3.25% in 2013, and 2.5% in 2014. This year-to-year slowdown can be attributed to the weakened external demand and the floods in the region. Nevertheless, positive developments have been registered in certain sectors, including tourism, construction, forestry and retail trade.

The medium-term growth is expected to be around 3%, mostly supported by a number of large-scale investment projects, including the start of the first stage of the Bar-Boljare highway (costing a quarter of the GDP), as well as projects in the energy and tourism sectors. The authorities expect positive spillover effects from these projects to the rest of the economy. The highway is especially critical not only in economic terms, but also for reasons of safety, regional development and broader integration. The objective of the Government in the period 2015-2017 is to conduct fiscal policy of reducing current spending, but increasing its investments in infrastructure, so that the public debt could be financed from economic growth.

Considering that fiscal consolidation in previous periods gave very positive results and considering all other relevant factors outlined above, it is expected that Montenegro’s economy will maintain its growth trend in the years ahead.

Andrea Pavlićević
+382/-20-228-490
andrea.pavlicevic@eurofast.eu