Similar trends continued to support domestic and foreign demand in the third quarter of this year, but at a slower pace, partly due to base effects. Accordingly, it is estimated that the growth of the gross domestic product (GDP) will remain strong, said the European Commission.
According to the latest forecasts of the European Commission (EC), the Montenegrin economy will grow by seven percent this year, while growth of 2.9 percent is predicted for the next.
In the fall report entitled European Economic Forecasts, which the Mina-business agency had access to, the EC estimated that the Montenegrin economy should grow by 3.2 percent in 2024.
The EC noted that the Montenegrin economy achieved strong growth in the first half of the year, stimulated, among other things, by an increase in private consumption and exports.
“Similar trends continued to support domestic and external demand in the third quarter of this year, but at a slower pace, partly due to base effects. Accordingly, gross domestic product (GDP) growth is estimated to remain strong, averaging around seven percent throughout year”, said the EC.
The complexity of the political situation, they warned, is exacerbating already high uncertainties and delaying the reform process, diverting focus from immediate economic challenges.
The EC expects the economy to slow down due to high inflation, increased political uncertainty, as well as stricter financing conditions and weaker external demand.
As a result, economic growth will be moderate in the coming year.
“Nevertheless, GDP growth could regain some momentum in 2024, when several capital investments in renewable energy sources begin to materialize”, the EC noted.
Oil and food import prices will remain the two key drivers of inflation, following trends in world markets. It is expected that inflation will begin to slow down in the coming years, because Montenegro has little dependence on gas and a significant share of hydropower production capacity.
“Given the strong dependence of the small Montenegrin economy on imports, the trade and current account deficits would decrease slightly in the coming year, due to the expected slowdown in consumption. It is expected that the deficits will widen to a certain extent in 2024, as the trend reverses”, said the EC.
The banking sector has solid capital levels and high liquidity.
“However, while banks would continue to support the economy, rising lending costs will reduce domestic demand for loans”, the EC warned.
The recovery of tourism, as they announced, had a positive impact on the creation of new jobs this year, whereby a significant share of new employment was recorded especially among women.
“However, employment growth is expected to slow next year, as domestic and external demand weakens, and to regain some momentum in 2024, as construction activity is reactivated thanks to some new investments”, the EC stated.
Budget performance continued to improve in the first three quarters of this year due to higher-than-expected inflation and strong output growth, which boosted budget revenues about five percent above plan and about ten percent more for the year.
“However, this situation is expected to begin to deteriorate rapidly in the last quarter of this year, after a series of new spending measures contributed to large increases in public sector wages and pensions, leading to a much larger budget deficit than originally planned for this year”, said the EC.
The fiscal balance is expected to be moderate in the medium term, thanks only to GDP growth.
“The same trend is expected for the path of public debt in the absence of larger public investments financed over the long forecast period”, the EC said.
Overall, they concluded, the balance of risks to the fiscal outlook “remains tilted to the downside,” due to ongoing pressures to increase spending in an unstable political environment, local media writes.