The European Commission (EC) revised up its forecast for Montenegro's 2013 economic growth to 1.9% in 2013 in the autumn edition of its European Economic Forecast from 1.8% projected in its spring forecast. The estimate is below the Montenegrin government’s forecast of 2.7% GDP expansion in 2013 but is slightly higher than the the latest IMF and EBRD projections - 1.5% and 1.0% respectively.
The growth outlook for 2014 was lowered to 2.3% from a previous estimate of 2.6%. Economic growth is seen strengthening to 3.1% in 2015.
Growth has picked up in the first half of 2013 as the economy grew 2.4% y/y in January-June, reflecting higher hydropower production and low prior-year base [in 2012 the GDP swung to a 2.5% contraction due to adverse weather conditions and falling credit activity], the EC noted.
Rising net exports, good tourism season and mild recovery of credit activity will be the main drivers of the GDP expansion in 2013. The launch of some large tourism sector investments in October 2013 will also likely support investments growth in the coming years. On the other hand, the financing of the Bar-Boljare motorway project, the liquidation of the aluminium factory KAP and the high level non-performing loans weigh on Montenegro’s recovery, the EC warned.
Montenegro’s mild GDP growth in 2013 will have limited impact on the labour market and the unemployment rate will remain high at 19.8% during the year while employment will increase moderately. The jobless rate will marginally retreat to 19.5% in 2014 and will further decline to 18.9% in 2015, the EC forecast.
CPI inflation will remain subdued at 2.0% in 2013, anchored by moderating global food and energy prices. It will accelerate slightly to 2.1% in 2014 and to 2.9% in 2015.
Montenegro’s current account deficit will stay high at 16.9% of GDP in 2013 before slightly narrowing to 16.3% in 2014, likely reflecting strong exports growth. It will increase to 17.1% of GDP in 2015 as domestic demand recovers.
The country’s budget deficit will exceed the full year target of 2.7% of GDP and is estimated at around 5% of GDP due to higher than planned expenditures, the EC said. In August, the government paid EUR 103mn of activated state guarantees on loans of bankrupt aluminium producer KAP, lifting budget spending by 8% above the plan. Nonetheless, the EC noted that budget performance has been improving markedly in 2013 and revenue rose by 7% y/y in January-August. The budget deficit is projected to decline to 3.6% in 2014 and fall further to 2.8% in 2015.
The public debt will increase to 58.6% of GDP by end-2013 from 54.0% of GDP a year earlier, reflecting KAP-related external borrowing. 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.
|Montenegro's main macroeconomic indicators||2012||2013||2014||2015|
|GDP real growth, y/y, %||-2.5||1.9||2.3||3.1|
|Current account balance, % of GDP||-18.6||-16.9||-16.3||-17.1|
|Budget balance, % of GDP||-3.3||-4.9||-3.6||-2.8|
|Public debt, % of GDP||54.0||58.6||59.6||59.2|
|Source: EC 2013 autumn forecast|
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