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Erste expects Montenegro's economic growth to slow in 2019

Author Radomir Ralev
Erste expects Montenegro's economic growth to slow in 2019 License: Creative Commons BY-NC 2.0

PODGORICA (Montenegro), May 30 (SeeNews) - Erste Group said it expects Montenegro's economic growth to slow to 3.1% this year from 4.9% in 2018, before quickening to 3.3% in 2020.

Montenegro's economic growth was supported by the peak of the investment cycle and stable private consumption, but higher-than-forecast domestic demand led to a faster pace of import growth, thus resulting in a negative net export contribution overall, Erste Group said in a macroeconomic outlook on the country published on Wednesday.

"Looking ahead, we expect growth to moderate towards potential 3+%-alike figures as highway construction phases out slowly," Erste Group said.

Inflation was low in the first quarter, at about 0.5%, due to the base effect, but is expected to gradually accelerate in the second half of the year and to average 1.3% in 2019, before rising to 1.9% in 2020, Erste Group said.

"We expect that net foreign direct investments (FDI) will cover close to 50% of the current account gap this year while further improving in 2020 as highway related pressures wane."

In general, Montenegro's banking sector is adequately capitalized and highly liquid, with the non-performing loan (NPL) ratio falling 0.4 percentage points to 6.9% at the end of last year. A few small banks are being confronted with poor profitability and some face capital shortfalls, but overall stability is not in jeopardy. Growth of credit to corporates slowed recently to mid-single digits, but household credit dynamics are still in double-digit territory, Erste noted.

Overall, fiscal positions are still being heavily influenced by highway-related expenditures, with a more aggressive consolidation effort to be seen in 2020 as these expenditures diminish, Erste Group added.

Montenegro's jobless rate is expected to fall to 15.0% in 2019, from 15.5% last year, and drop further to 14.9% in 2020.

The general government budget deficit is predicted to fall to 2.9%, from 3.5% in 2018. The government is expected to end 2020 with a slim surplus of 0.1%.