Podgorica, (MINA-BUSINESS) – The European Bank for Reconstruction and Development (EBRD) has revised upwards this year’s growth forecast for Montenegro’s gross domestic product to 4.2 percent.
According to the autumn Regional Economic Prospects, the growth outlook is 0.9 percent higher compared with the May forecast.
The EBRD expects to see a three percent GDP growth next year, 0.3 percentage points higher compared with the outlook published in May.
“We are increasing our 2018 growth forecast to 4.2 per cent, with a slight moderation to 3.0 percent in 2019 mainly on the grounds of the further investment in the main highway. The main risks include the high level of public debt and limited fiscal space,” the report says.
The Bank says that, having exceeded expectations in 2017 and grown by an estimated 4.7 per cent, the Montenegrin economy continued to power ahead in 2018, with growth in the first half of 2018 estimated at 4.8 percent year-on-year.
The EBRD believes that the growth was mainly driven by investment, particularly in the priority section of the highway connecting the Montenegrin coast with Serbia, as well as in some flagship tourism developments on the coast.
“Private consumption has also grown strongly, driven by a relatively high rate of lending. However, high imports, as a component of both investment and private consumption, have been fuelling a large trade deficit and act as a drag on growth,” the EBRD says.
The report says that tourist arrivals in the first eight months of 2018 were up by 12 percent year-on-year, with a continued rise of visitors from the EU, boosted by new airline connections.
“The government has begun implementing a medium-term fiscal adjustment strategy in order to address the sustainability of the public finances, which is seen as one of the country’s biggest risks,” the Bank says.
The EBRD reminds that the government placed a seven-year, €500 million Eurobond at 3.375 per cent in April 2018.
“This is a record low rate for the country, implying a positive reaction from the financial markets for the recent fiscal consolidation measures,” the report says.
The EBRD believes, however, that further financing will be needed in the coming years to meet significant Eurobond redemptions in the period 2019-21.
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