Montenegro: EU dream within reach

Recent revisions put real GDP growth in 2024 at 3.2% y/y. Growth remained unchanged in early 2025, as official data shows same level of growth in 1H25 as well. Domestic demand was key in supporting growth, as shorter foreign tourist nights spent resulted in subpar export figures. After slowing below 3% y/y in 1Q25, inflation accelerated again with prints near 5% y/y in September. While the budget gap at the half-year mark is in line with plan, the 12% y/y rise on the expenditure side suggest rising fiscal risks going forward. The EU accession dream is alive more than ever, as the country closed another chapter since our last report, 7th in total, and hopes to close an additional five by year-end.

Growth in 1H25 averaged 3.2% y/y, after accelerating in 2Q, and was supported by strong domestic demand factors as private consumption and investments recorded 6.4% y/y and 7.4% y/y growth respectively. A negative surprise came from the external side, as exports of G&S declined 2.8% y/y, while imports increased by 3.7% y/y.

Outlook suggest growth figures should remain similar in the mid-term, as well as the structure of growth. Double-digit growth of net wages, both in nominal and real terms, has supported consumption in 2025 but we expect wage growth to moderate to around 6% in 2026. Investments, in our opinion, will be the key driver of growth over the medium term due to numerous large scale infrastructure projects. However, predicting the exact timing of these projects is not easy as funding largely depends on meeting EU and IFI’s reform goals. Although visitor numbers grew, the season-mix and average length of stay deteriorated, indicating softening tourism which could likely continue over the medium term as replacing the important Russian market is a multi-year task. News that WizzAir will have a hub in Montenegro as of March next year is certainly a step in the right direction. We expect improvement on goods side, as electricity export disruption should be contained to 2025. We expect real GDP to rise towards 3.3% y/y and 3.5% y/y in 2026 and 2027 respectively.

After averaging just 2.2% y/y over 4Q24 and 1Q25, inflation started to pick up in Spring, with the most recent print landing as high as 4.9% y/y. Most of the recent inflation pressure can be attributed to food prices. While in 1Q25, food prices contributed to just 11% of headline CPI overall, in September food and non-alcoholic drinks are responsible for almost 50% of the headline figure. We expect increased inflation pressures until the end of 1Q26, some easing through middle of the year due to base effects and then rather sticky prints around 3%.

Both general budget revenues and expenditures came in around 3% below plan at the half-year mark, shaping a 1.3% of GDP budget gap. A quick glance on y/y performance indicates rising fiscal risks as revenues are up 1.3% y/y, while expenditures surged 11.8% y/y. Full implementation of the investment pipeline is likely to keep the budget gap elevated around 3% of GDP in the upcoming period.

After placing an EUR 850mn eurobond in March, Montenegro has covered most of its gross refinancing needs for the year. MoF also plans to issue a retail bond in November in the amount of EUR 50mn.

Montenegro remains the WB’s front-runner in EU integration, having opened all 33 negotiating chapters and provisionally closed 7. Brussels has praised the reform momentum and while the set goal of closing all chapters by end-2026 seems ambitious there is no doubt country is on the right track.

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