In its latest report, the World Bank (WB) did not change its growth forecasts for the Montenegrin economy for this year and the next. Montenegrin economy should grow by 3.4 percent this year, and 3.1 percent next year, as predicted by the SB in the January report.
In the latest spring report on economic prospects in the region of Europe and Central Asia, which the Mina-business agency had access to, the SB increased last year’s growth of the Montenegrin economy by 0.2 percentage points, that is, from 5.9 percent to 6.1 percent. In the part of the document that refers to Montenegro, it is stated that the unfavorable global economic outlook and high domestic uncertainty weigh on the otherwise positive prospects of Montenegro.
“During the period from this year to 2025, it is predicted that growth will average 3.1 percent, as the growth of private consumption slows down, while investments are expected to make a marginally positive contribution to growth,” the SB explained.
Tourism, as estimated by the SB, is likely to continue to recover this year to reach the level of 2019, although the deterioration of growth prospects in the European Union (EU) and the region may have a negative impact, both on tourism and on broader growth prospects. Poverty is forecast to fall to 16.6 percent, while inflation should slow to 7.9 percent this year and further to four percent next year.
Although higher energy prices disproportionately affect the poor, they also support Montenegro’s electricity exports, with the help of increased production capacity. These factors, together with exports of tourism and transport services, are projected to support a reduction in the current account deficit to 11.1 percent of gross domestic product (GDP) in 2025.
The fiscal balance Is expected to be moderate in the medium term, but will remain elevated at 4.9 percent of GDP this year and 4.5 percent next year, due to higher wages, social and capital costs. As a result, public debt will remain high at around 70 percent of GDP between now and 2025. Additional fiscal consolidation measures, however, would lead to better fiscal performance.
Due to the tightening of global financial conditions and significant financial needs of Montenegro of about ten percent of GDP this year, the country will need very careful fiscal management and stronger control over its expenditures.
The outlook Is surrounded by multiple downside risks. High geopolitical uncertainty and global inflation may weaken prospects for growth in Montenegro’s main trading partners.
“Inflationary pressures accelerate monetary tightening, which translates into more expensive external financing. Political instability and delays in resolving the institutional deadlock are the main domestic risks. The seriousness of the upcoming challenges requires strong political commitment and actions to mitigate these risks”, the SB concluded.