European Commission Economic Forecast for Montenegro

The European Commission (EC) Directorate-General for Economic and Financial Affairs has released it’s European Economic Forecast for Spring 2011 with a mixed forecast for Montenegro.

Positive Points from 2010:

  • Real economic expansion close to 1%
  • 19% increase in exported goods
  • 16% increase in exported services
  • 13% increase in the construction industries
  • Trade gap decreased by 4% of GDP
  • Current account deficit decreased by 5% of GDP
  • Net FDI increase
  • Very mild inflation
  • Disposable income rose 2.9%

The main negative point from 2010 was that unemployment remains above 19%.

The report is subtitled “A recovery driven by external demand …”  The EC predicts that the Montenegrin economy will gain momentum in 2011 largely from export growth.  While the EC may see that as a potential negative, it is the correct solution for Montenegro at this time.  The EC would like to see a recovery fueled by domestic consumption, aided by an increase in domestic consumer lending.   This presupposes that Montenegrin’s can spend themselves into prosperity — a very questionable proposition.

The EC believes that Foreign Direct Investment (FDI) inflows into Montenegro will be “rather high” in 2011, but worries that there are not enough large infrastructure projects.  FDI is one of the critical factors for economic growth, but a large number of small projects is generally more stable and positive than a small number of large projects.

The EC predicts that rising global prices will lead to inflation in Montenegro, but that this will be offset by the rising wages which result from economic growth.

The EC believes that Montenegrin government debt will be brought under control in 2011 and begin to decrease.  This will be due in part to reduced government spending and in part to revenue increases which result from economic growth.

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