Government of Montenegro adopts economic analysis for first half of 2011

Podgorica, Montenegro (2 September 2011) – Government of Montenegro adopted the economic analysis for the first half of 2011 in which it concluded that the international environment had a strong direct and indirect influence on Montenegrin economy, said Tijana Stanković, Assistant to the Finance Minister for economic policy and development following the Cabinet meeting on Thursday. She underlined the importance of the Arab revolutions and their impact on oil prices, the Japan catastrophe and its effect on the decline of global aggregate demand, as well as of the EU debt crisis which she said will affect the decrease in potential investment in Montenegro.

Ms Stanković went on to present the economy indicators as follows:

In the first two quarters, the economy has risen at the rate of 2.1%, which is in line with the projected 2.5% annual growth rate. Main growth generator is tourism (an 8.3% increase in the number of tourists). The retail industry rose at a rate of 16.1%, whereas the construction prices increased at a rate of 18.1% and at the same time there has been a decline in new construction contracts. Processing industry picked up by 9.7% which, as Ms Stanković explained, was owing not only to the aluminium production, whose prices did rise on the market, but also to the upward trends in the wood processing industry, chemical industry and food processing industry.

The inflation has risen in the first two quarters due to the soar in oil prices and it was at the highest level in March (3.7%), but stabilised in June at 3.5%. The unemployment rate of 11.3% in July is a positive trend in comparison to 2010, as is the employment growth of 5.6%. The average salary, with calculated inflation, was 1% lower than a year ago, although it nominally grew. Ms Stanković underlined the structural imbalance in the labour market by illustrating that there are around 30.000 unemployed Montenegrins, yet almost 10.000 seasonal workers. She stressed the growing number of unemployed university and high-school graduates, which according to her calls for systemic changes in all sectors related to the labour market.

Public finance deficit was at 1.56%, in line with the projected 2.6% for 2011, budget income decreased at a rate of 2.7% and the budget expenditure rose at the rate of 5.3%. According to Ms Stanković, the income decrease is due to uncollected revenue, whereas the expenditure can be attributed to the growing number of pensioners and increased social spending. Public debt is at the rate of 44.9%, much higher than in June 2010 (37.4%), the reason being the Eurobond sale.

The deposits constantly increased at a mild rate, proving citizens’ growing trust in banks. Montenegro has also experienced positive trends in the foreign trade – export grew at a rate of 50%, and import at 11.2%, which points to the growth of aggregate demand. The foreign trade deficit decreased by 22,5% in comparison to the previous quarter and net foreign direct investments decreased by 21%.

Ms Stanković concluded that Montenegro, as a small and open economy, is vulnerable to external shocks and she noted that the decision-making must be flexible and should in no way be determined by short-term effects which in the longer term could cause a negative trend, but should rather focus on sustainable stability. She concluded by saying that the Government will, in cooperation with the Central Bank, recommend a set of measures for boosting the credit activity of the banks and measures that will confront new challenges coming primarily from the external market.