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PODGORICA (Montenegro), May 11 (SeeNews) - The European Commission said on Thursday it has downgraded its forecast for Montenegro's economic growth in 2017 to 3.3% from 3.7% projected in February, due to the negative contribution of investment-related imports.
Montenegro's economic growth is expected to stand at 3.5% in 2018, the Commission said in its Spring 2017 Economic Forecast report.
Fiscal tightening to redress recent increases in public wages and social spending is projected to be a drag on growth, while large public investment spending keeps budget deficits high and the public debt ratio on an upward trajectory, the European Commission said.
"The investment-driven growth dynamic is expected to continue in 2017 and 2018, as the construction of a highway and some major tourist resorts will continue during this period," the Commission noted. "However, the need for fiscal consolidation to contain the rapid expansion of public debt is projected to slow down both private and public consumption in 2017."
Bank lending is expected to remain subdued during the forecast period as some credit institutions’ balance sheets still remain burdened by non-performing loans, the Commission said.
The completion of some new tourism, electricity and metal production facilities during this period could moderate the expansion of the external deficit by reducing the need for imports, and by increasing exports capacities.
"Investment works boosted employment in construction, which accounted for one out five new jobs created in 2016. However, a substantial number of women left the labour force in 2016 after qualifying for a new lifetime benefit (analogous to a pension), while others, previously inactive, registered for the first time in the employment agency as job seekers, increasing the active (but unemployed) active population ratio," the Commission explained.
The Commission estimates the job creation to accelerate in 2017 on the back of increasing construction activity and tourism, leading to some reduction in the unemployment rate. At the same time, the negative effect of the mothers' benefits scheme on labour market participation of women is set to fade.
So long as the highway works continue, the budget deficit is projected to be high and the public debt ratio is expected to increase further. Financing risks appear limited in the short-term since the funding for the highway is secured to a large extent by a loan to be repaid as of 2021, after a six-year grace period.
Main economic indicators outlook (pct change):
|Gross fixed capital formation||29.9||19.9||8.9|