EU Commission’s “European Economic Forecast” optimistic about Montenegro’s growth in 2011

Brussels, Belgium – European Commission issued its bi-annual analysis on EU and candidate-states’ economies, “European Economic Forecast”, and made a very favourable assessment of Montenegro’s economic outlook for 2011, expecting “economic activity to gain momentum” through high FDI, “combined growth of both employment and wages,” and overall exports growth in metal production and services, most notably tourism.

The report expects Montenegrin economy “to broaden progressively benefitting not only from improved consumer confidence but also from export growth” and the “annual GDP growth could thus rise above 2% in real terms in 2011.” It further reads that “domestic demand is likely to further accelerate in 2012, supported by the gradual recovery of banks’ credit activity,” adding that the latter, coupled with metal industry exports and the “acceleration of tourism and its related activities would be among the key factors supporting economic growth in 2012.”

“European Economic Forecast” further puts emphasis on predictions related to FDI, which is expected to rise significantly, even if some major projects remain idle: “Although the present forecast does not take into account large infrastructure projects not yet initiated (e.g. highway, large hydropower plants), FDI inflows are expected to be rather high in 2011 and could further accelerate during 2012.”

The report reads that the economy has now recovered from previous high contraction in 2009, with “real expansion close to 1%,” mainly due to the “global metal market’s additional boost to the recently restructured local industries” which “contributed to the increase of total merchandise exports by 19% y-o-y.” The report, however, pointed to high unemployment rates in 2010 (above 19%) and “weak dynamics of the labour market,” but noted that these will be corrected since the expected high FDI “will have a positive impact on employment” in 2011 and 2012. It is also predicted that the possible 3% inflation in 2011 expected due to the rise global food and energy prices would “decline to some 2% in 2012” as a consequence of expected moderation of prices.

The report expects the general government deficit to decline “from 4% of GDP in 2010 to 3% in 2011 with the budget reaching equilibrium in 2012,” as a result of expenditure-based consolidation. It is predicted that “fiscal revenues will benefit from the accelerating domestic demand” which will coupled with “subsequent inflow of indirect taxes revenue” and “expenditures will decrease in real terms and the quality of public spending should remain stable.”

Although expecting relatively high government debt in 2011 (45% of GDP), the report predicts that the “external budget financing should gradually decrease as the budget performance improves with the expected expansion of the economy.”