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2023/11/09 / Erste Group Research

Consumption driven recovery

Growth in Montenegro was the highest in Europe in 1H23, at 6.6% y/y. Consumption was the key factor, boosted by robust wage dynamics, strong tourism pre-season, and solid credit demand supported by high inflow of Russian and Ukrainian citizens.

The outlook remains overall stable with growth likely to be supported through household demand and service export in the period ahead as well. One of the hand, domestic economy appears more resilient than forecasted with tightening labor market, higher employment, solid tourism intake, rising (temporary) population, as well as declining inflation pressure. On the other hand, slowing of global growth, notably in the EU, could weigh on local economy, albeit to a lesser extent than is the case in some other regional economies as Montenegro relies more on services than its local manufacturing industry.

Inflation peaked at 17.5% y/y in November last year and started to decline, dropping to 6.9% y/y in July, but hovering around 8% y/y on average thereafter. A large chunk of actual price pressure is still explained by elevated food (14.2% y/y in 9M23) and fuel prices (23.2% y/y in 9M23). We expect inflation to average 9% y/y for the full year, before roughly halving next year (4.7% y/y) and further moderating in 2025 (3.1% y/y).

Tourism activity continued to recover well in the aftermath of numerous external shocks. After reaching 85% of pre-pandemic foreign nights in 2022, this year activity has surpassed pre-pandemic levels with 7M23 foreign nights 29% higher than in the same period of 2019. The detailed data shows key tourist markets remain unchanged despite global jitters.

Fiscal performance YTD has been strong, as revenues were boosted by solid VAT and excise tax collection but also one-offs (economic citizenship program). On the other hand, capital expenditure underperformance (39% below plan after 9M23) also supported the bottom line. The general budget performance after 1H23 shows 3.4% GDP budget surplus, while the central budget surplus after 9M23 is slightly lower at 2.6% of the GDP.
The early elections won by Europe Now in June followed almost three years of relatively constant political turbulence and the fall of two governments. Finally, in late October, the leader of the Europe Now movement, Milojko Spajic, was elected prime minister by MPs with 46 votes in the 81-seat chamber.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focus-
Currency in focus-
Sector in focus-


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