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Nov 09, 2017 15:30 EEST
November 9 (SeeNews) - The European Commission said on Thursday it has increased its forecast for Montenegro's economic growth in 2017 to 3.9% from 3.3% projected in May, to be driven by large infrastructure investments.
Montenegro's economic growth forecast for 2018 has been lowered to 3.0% from 3.5% projected in May, the Commission said in its Autumn 2017 Economic Forecast report.
The introduction in mid-2017 of a comprehensive fiscal consolidation strategy is expected to improve the fiscal position over time, but would also weigh on growth, particularly in 2018. Moreover, until the expected completion of the highway works in mid-2019, the public debt and budget are set to remain under significant pressure, the European Commission said.
"The role of investment as the major driver of growth is being gradually overtaken by private consumption," the Commission noted. "This trend is expected to continue over the forecast period, even if a temporary setback of private consumption could be expected in 2018 due to the planned increase of the VAT rate."
Start of production of a wind power plant and a new tobacco factory planned in November 2017, followed by the completion of the interconnection electricity cable with Italy, and the opening of some new hotels, are expected to turn the contribution to growth from net exports into positive territory in the next two years and to further reduce external imbalances.
However, given the strong seasonal pattern of the Montenegrin labour market, unemployment is expected to increase again by the end of the year. In 2018 and 2019 a further reduction of the unemployment rate is expected, albeit at a lower rate, as investments are being gradually completed, the Commission said.
"Credit growth remains strong thanks to household and general government borrowing, amidst weak lending to the corporate sector. It is expected that the increase in lending activity, supported by the Central Bank’s ongoing programme for reducing commercial banks’ non-performing loans, would help ease lending conditions to corporates as the sector keeps deleveraging gradually."
The financial crisis legacy of high level of indebtedness and liquidity constraints continues constraining the corporate sector, and represents a major risk for the economy, resulting in a large number of firms with their bank accounts frozen due to contract enforcement claims. A decline or a slowdown in the number of tourists represents another important risk for the main export industry of the country, according to the autumn forecast.
The Commission estimates the completion of the construction works of the Bar-Boljare motorway, expected in mid-2019, will ease the pressure on public finances.
Montenegro's main economic indicators outlook (pct change):
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