EC lifts Montenegro’s 2014 GDP growth forecast to 2.7%

By bne IntelliNews February 26, 2014

The European Commission (EC) revised up its forecast for Montenegro's 2014 economic growth to 2.7% in the winter edition of its European Economic Forecast from 2.3% projected in the autumn.

This year's growth will be mainly underpinned by rising net exports and a new wave of tourism, energy and infrastructure investments, the report read. The estimate is below the Montenegrin government’s forecast for 3.6% GDP expansion but is slightly higher than the latest World Bank and EBRD projections of 2.5% and 2.0%, respectively.

The growth forecast for 2013 was also lifted to 2.7% from a previous estimate of 1.9%. Rising net exports, good tourism and post tourism seasons were the main drivers of the GDP expansion in 2013, the EC said. Economic growth is seen strengthening to 3.0% in 2015.

The EC noted that uncertainties related to the credit growth as well as the peace of the planned investments and their contribution to GDP growth in the short run will weigh on its growth outlook.

Montenegro’s economic recovery in 2013 and 2014 will have a limited impact on the labour market and the unemployment rate will remain high at around 19% during the period, while employment will increase moderately. The jobless rate will retreat to 18.5% in 2015 when the pace of investment is expected to speed up.

CPI inflation will remain subdued at 2.3% in 2014. It will accelerate slightly to 2.6% in 2015 as domestic demand recovery strengthens.

Montenegro’s current account deficit will stay high at 15.3% of GDP in 2014 and will increase slightly to 15.8% in 2015.

The country’s budget deficit exceed the full year target of 2.7% of GDP and reached around 4% of GDP due to higher than planned expenditures related to bankrupt aluminum smelter KAP. Nonetheless, Montenegro avoided a rebalance of the budget thanks to higher-than-expected  tax revenue, the EC underscored. The budget deficit is projected to decline to 2.5% in 2014 and fall further to 1.1% in 2015.

The public debt will increase to 57.9% of GDP by end-2014 from 56.8% of GDP a year earlier, due to rising public investments. It will remain high at around 59% of GDP in the near term. The EC also warned that the rapid pace of growth of public indebtedness remains an important downside risk for its current forecast.

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