PODGORICA (Montenegro), July 23 (SeeNews) – The European Commission said it expects Montenegro's economic growth to slow to 3.0% in 2018 from 4.0% last year, based on the country's economic reform programme (ERP).
The Montenegrin gross domestic product (GDP) growth is expected to keep slowing gradually to 2.7% in 2019 and 2.6% in 2020, the EU Commission said last week in its a report containing its Commission's assessments of the 2018 ERPs of countries that are candidates or potential candidates for EU membership.
The ERP includes a macroeconomic and fiscal policy framework as well as structural reform plans to boost competitiveness and long-term growth. The ERP exercise also aims to help enlargement countries develop their institutional and analytical capacities and to prepare them for participation in the EU’s multilateral surveillance and economic policy coordination procedures once they become member states of the EU.
Private and government consumption is set to decelerate due to the negative impact of fiscal consolidation measures, while fixed capital formation is not expected to contribute to growth beyond 2019 after the completion of the works on the first section of the Bar-Boljare highway and the power interconnection cable with Italy, the Commission said.
The ERP assumes a larger negative impact of the fiscal policy on private and government consumption beyond 2018, even though no major fiscal consolidation measures are planned thereafter. Also, the ERP seems to underestimate the contribution of investment to growth once the main section of the highway is completed, which does not appear consistent with a large number of investments presented in the programme, the EC noted.
A high and persistent current account deficit remains driven by a structurally large trade imbalance, as robust tourism growth, remittances from a large diaspora, and pension transfers from abroad result in continuing surpluses in the balances of services, primary and secondary income, the Commission said. "However, the
merchandise trade balance displays chronic high deficits, exacerbated by large infrastructure investments and a narrow production base."
In May, the Commission said it has kept its forecast for Montenegro's economic growth in 2018 at 3.0%, driven by construction and tourism. Montenegro's economic growth forecast for 2019 was lowered to 2.9% from 3.0% projected in November, the Commission said in its Spring 2018 Economic Forecast report.