Montenegro's foreign trade deficit shrank 4.8% y/y to EUR 1.2bn in the first ten months of the year on the back of rising exports and falling imports, statistics office data showed on November 25. The gap accounted for 35.7% of the full-year GDP forecast, down from 37.2% of GDP a year earlier, according to IntelliNews calculations.

The 10-month export-import coverage ratio strengthened to 20.7% from 19.6% a year ago but remained among the lowest in the region.

Exports increased 2.4% y/y to EUR 310mn in January-October. The reading was underpinned by higher sales of electricity (up 198% y/y to EUR 82mn), reflecting improved weather conditions and lower consumption of bankrupt aluminium producer KAP which is the biggest industrial consumer of electricity in the country. Sales of non-ferrous metals, on the other hand, remained in the red, shrinking 41% y/y to EUR 68.2mn in January-October.

Iron and steel exports likewise fell 24.0% to EUR 11.5mn over the period. We expect weak metal sector activity to remain a drag on Montenegro’s exports growth in the near-term, reflecting reduced production of bankrupt aluminium smelter KAP and steel mill Zeljezara Niksic.

January-October imports declined 3.4% y/y to EUR 1.5bn, due to falling domestic demand for electricity (down 52% y/y to EUR 47mn), petroleum products (down 14% to EUR 159mn) and metalliferous ores and metal scrap (down 30% to EUR 27mn).

The main exports destinations for domestic Montenegrin producers in January-October were Serbia (36% share in total), Croatia (16.0%) and Slovenia (10%). The major import partners were Serbia (29% share in total imports), Greece (8%) and Bosnia (7%).

In October alone, Montenegro's exports fell 7.4% y/y to EUR 25mn for a third straight month, whereas imports went up 1.6% to EUR 161mn over the period.  Montenegro’s export performance has deteriorated markedly since June, due to slower growth of electricity sales abroad (partly reflecting higher prior-year base).