Montenegro: GDP growth rate reverted to historical averages

After three exceptional years when growth averaged close to 9% y/y, expansion slowed to 3% y/y in 2024. Domestic demand largely supported growth, but weaker than expected tourism season pushed the FY GDP figure below expectations. Inflation also slowed, with rates around the 2% y/y mark at the end of the year. Implementation of the second phase of tax and wage reform lifted the budget gap to 3.1% of GDP, up from a surplus of 0.6% in 2023. Montenegro managed to close 3 additional chapters last year in the EU accession process, thus in total having closed 6 chapters. The country recently received positive assessment from the EU commissioner for enlargement Marta Kos and, according to her, remains on track to close all chapters by the end of 2026 or 2027.

FY24 real GDP growth averaged 3% y/y. Growth was supported by strong domestic demand factors as private consumption and investments recorded 8.7% y/y and 9.3% y/y growth respectively. A negative surprise came from export performance, as exports of G&S declined 3.2% y/y, largely due to relatively weak main part of tourist season.

Outlook suggest growth figures should remain similar in the mid-term, as well as the structure of growth. Another year of projected double-digit growth of net wages, both in nominal and real terms, indicates continuation of supportive consumption pattern. Investments, while slowing, will remain supportive while the biggest uncertainty is once again related to the outcome of the tourist season. Due to worsening economic outlook in key EU countries, poor air connectivity, and fierce tourism competition on the Mediterranean, we expect tourism arrivals will once again remain below record 2019 level.

Inflation averaged 3.3% y/y in 2024, falling as low as 1% y/y in September after somewhat surprising deflationary contribution from food prices. Inflation picked up to 2% y/y around year-end and climbed closer to 3% y/y in 1Q25. We expect prices will remain stable in the vicinity of 3% y/y.

Final figures show last year’s tourism season was on par with 2023 in terms of foreign arrivals, but also shows a 5% y/y decline in nights spent. Comparing to 2019’s record arrivals, 2024 was 2.5% below those figures. BoP data shows nominal revenues from tourism fell 3.1% y/y reflecting the drop in average time spent in the country.

Both general budget revenues and expenditures came in largely as planned, shaping a 3.1% of GDP budget gap for the whole year. Full implementation of the Europe now program is likely to keep the budget gap elevated above 3% of GDP in the upcoming period.

After placing an EUR 850mn Euro bond in March, Montenegro has covered most of its gross refinancing needs for the year. Next year’s funding needs drop to around 8% of the GDP, only to climb towards 15% of GDP in 2027 when another eurobond matures.

Montenegro has made good progress regarding EU accession negotiations. At the end of March, the European Commissioner for Enlargement Marta Kos has stated that Montenegro could finalize EU accession negotiations by 2026 or 2027, while Deputy Prime Minister for Foreign and European Affairs Filip Ivanović said the country is ready to close six to nine chapters by the end of this year.

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