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2021/12/06 / Erste Group Research

Tourism rebound lifts growth

Following four straight quarters of economic decline, growth finally returned in 2Q21 (19% y/y), thus shaping average growth of 6.2% y/y in 1H21. Return of private consumption and more than doubled service export in 2Q21 were key factors in the respective period.

Tourism results should amount to around 70%-75% of pre-pandemic levels, thus some 15%-20% above our estimates earlier in the year. The economic recovery is thus driven by a surge in private consumption and exports of services. Contribution of public sector to growth is easing as the economic support measures phase out. Investment activity growth also appears weak as works on the first part of the highway project finally come to an end. Mentioned tourism outperformance lifts our FY21 GDP forecast to 13.1% y/y while our calls for 2022 and 2023 stand at 5.8% y/y and 3.5% y/y respectively.

The observed rise in global energy and commodity prices kicked in 2H21, pushing inflation to higher levels. Prices should peak early next year and then gradually decline. That said, given the proposed two-digit reduction of the tax wedge and consequently a rise in household disposable income, price pressures in Montenegro could be of more persistent nature. Bottom line, after the expected average rise of prices by 2.4% y/y this year, we see acceleration of prices by an average 2.9% y/y in 2022

Tourism-related windfalls eased fiscal concerns. The deficit of the central budget after 9M21 stands at just 1.3% of the forecasted GDP (compared to roughly 8% of the GDP in the same period in 2020). The MoF plans the FY21 budget gap at 3% of the GDP but given encouraging revenue intake since the introduction of e-fiscalization from mid-year we expect the gap will be 0.5pp lower at 2.5%. Next year’s gap is targeted at 3.9% of the GDP but could be lower given very ambitious CAPEX plan.

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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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