"Montenegro’s economy recorded high GDP growth in 2023, driven by very strong private consumption and a good tourism season. Output growth is projected to moderate in 2024-2025, as household consumption decelerates. Subdued external demand is likely to affect tourism growth," the Commission said in its Spring 2024 Economic Forecast published on Wednesday.
It also improved its forecast for Montenegro's economic growth in 2025 to 3.0%, up from 2.3% anticipated in November.
"A good fiscal performance in 2023 was supported by high growth of revenue from consumption taxes and one-off items while capital spending remained under-executed. Going forward, the budget deficit is set to widen and the public debt-to-GDP ratio is forecast to increase," the EU executive arm said.
The Commission sees Montenegro's general government swinging to deficits of 3.7% of GDP this year and 3.2% of GDP next year, from the surplus of 0.4% of GDP recorded in 2023.
The general government gross debt-to-GDP ratio is projected to rise to 61.7% this year and 62.9% in 2025, from last year's 58.2%.
"Absent fiscal consolidation measures, the public debt-to-GDP ratio is projected to increase in 2024-2025 as nominal GDP and inflation are set to slow down while debt servicing costs rise. Public debt rollover needs will be significant in the upcoming years," the Commission warned.
Average annual inflation in Montenegro is expected to decelerate to 4.8% this year and 4.3% in 2025, from last year's 8.9%.
"The balance of risks is tilted to the downside due to high financing costs and political risks. A positive risk relates to Montenegro’s participation in the EU’s Growth Plan for the Western Balkans which would support capital expenditure investment and productivity. The expected growth of investment in 2024 is likely to support credit activity, in particular for the corporate sector," the Commission noted.
In April, Montenegrin prime minister Milojko Spajic said that the tiny Adriatic state hopes to receive 500 million euro ($542 million) under the EU's 6 billion euro Reform and Growth Facility for the Western Balkans, which comprises 2 billion euro in grants and 4 billion euro in loans for the period 2024-2027. The financing aims to support EU-related reforms in the Western Balkans and to foster the region's economic alignment with the EU.
($ = 0.923 euro)