Montenegro’s Economic Outlook: Slowing Growth, Positive Sentiment, and EU Accession Progress

Montenegro is experiencing a moderation in its economic growth, following three exceptional years of expansion averaging close to 9% per year. According to recent forecasts, Erste Group has reduced its projection for Montenegro’s GDP growth in 2024 to 3.3% from the previously estimated 3.7%.

The first half of 2024 saw a real GDP growth rate of 3.4%, driven primarily by strong domestic demand, including household consumption and investments. However, net exports had a negative impact on the overall growth. Despite the slowdown, the economic sentiment remains positive, partly due to a credit rating upgrade by S&P to B+ with a stable outlook in August 2024.

Inflation, which had been hovering between 4% and 5% in the first half of 2024, has started to drop, with the September inflation rate landing at 1% year-over-year. This trend is expected to continue, with prices anticipated to remain stable around 3% year-over-year in the upcoming months.

The country’s fiscal performance has been robust, with general budget revenues exceeding plans and expenditures below expectations, resulting in a surplus. This positive fiscal outlook has encouraged the government to proceed with the second phase of the “Europe now” fiscal reform.

Montenegro has also made significant progress in its EU accession process, marked by a positive Interim Benchmark Assessment Report in June 2024. This progress has enabled the country to begin closing chapters and move closer to EU membership. However, the recent loss of the ruling majority in elections in Podgorica could introduce some uncertainty.

Tourism, a crucial sector for Montenegro’s economy, has shown slightly weaker results in 2024 compared to the previous year, with foreign tourist arrivals and nights spent being lower than in 2023. Despite this, the government’s fiscal strategy, including wage and pension hikes, is expected to support economic activity.