Montenegro Economic Forecast

Year-on-year GDP growth accelerated in Q2. The external sector supported the economy, while, on the domestic demand front, government expenditure expanded at a faster clip. That said, private consumption and fixed investment cooled. Turning to Q3, available data points to softening growth, although a strong summer tourism season should have supported activity to some extent. Economic sentiment averaged lower in Q3 than in Q2, weighed down by worsening sentiment in the construction, retail and services sectors. Additionally, inflation remained elevated in Q3. Moving to Q4, a further decline in economic sentiment in October hints at still-subdued growth dynamics. In politics, on 31 October, Parliament voted in a new broad-based coalition government led by Prime Minister Milojko Spajic of the centrist Europe Now party, whose priority will be European Union accession.

Inflation fell to 6.1% in October from September’s 7.9%, marking the lowest print since January 2022. Softer increases in prices for food and non-alcoholic beverages, furniture and household equipment, health, and education drove the result. Inflation should continue its downtrend from current levels next year, but protracted pass-through effects will keep it elevated.