The European Bank for Reconstruction and Development (EBRD) has adjusted its growth forecast for Montenegro’s economy to 2.6 percent for this year, down from the previous estimate of 2.9 percent made in February.

According to EBRD’s May forecast, Montenegro’s real GDP growth is set to decelerate to 2.6 percent, a decrease from 3 percent in 2024 and 2.7 percent in 2026.

This moderation in growth is attributed to rising tourism, which may lead to increased salaries and thus limit domestic demand. This situation poses a challenge, as it accounts for approximately 40 percent of the country’s electricity needs and may significantly reduce local electricity production, necessitating an increase in imported electricity.

“Conversely, continued salary growth could drive a rapid increase in consumption, albeit contributing to a widening trade deficit,” the EBRD noted.

The EBRD points out that Montenegro’s real GDP growth has sharply declined from 6.3 percent in 2023 to 3 percent in 2024, primarily due to a substantial slowdown in tourism following a record season in 2023.

“The growth in 2024 was fueled by expansive fiscal policies, rising salaries and pensions, along with ambitious infrastructure projects. However, net exports have decreased due to diminished tourist and immigrant inflows, especially from Russia and Ukraine,” the forecasts state.

Inflation, which peaked at 17.5 percent in November 2022, has significantly decreased, reaching one percent in September 2024, before rising again to 2.8 percent in February 2025.

The EBRD forecasts a real GDP growth rate of 2.6 percent for 2025 and 2.7 percent for 2026, a slight adjustment from the February projections by 0.3 percent.

Political instability in Serbia and the spillover of slower growth from developed European economies stress the region

Projected growth in the Western Balkans is expected to slow from 3.6 percent in 2024 to 3.2 percent in 2025, before rising to 3.4 percent in 2026.

“Political instability in Serbia and the impacts of slower growth in developed European economies are weighing on the region’s prospects,” the EBRD assessed.

The report indicates that growth in the Western Balkans was slightly accelerated, moving from 3.4 percent in 2023 to 3.6 percent in 2024, primarily driven by private consumption supported by rising salaries, along with public investment.

Tourism remains robust, particularly in Albania and Kosovo, with a somewhat diminished performance in Montenegro.

“Conversely, low external demand persists from the region’s most significant partner, expected to grow by 3.2 percent in 2025 due to direct customs, and to increase to 3.4 percent in 2026,” it noted.

The report elaborates on the risks associated with potential negative events, including the escalation of the global trading war and ongoing political tensions in various economies.

“Regions with strong, export-oriented sectors, like Bosnia and Herzegovina, may bear the brunt of Serbia’s declining exports. In contrast, countries with less dependency on tourism, such as Kosovo, Albania, and Montenegro, may experience more moderate impacts from any potential tourism slowdown in the European Union. The strained labor market and significant increases in minimum and public sector wages are likely to add inflationary pressures, adversely affecting economic competitiveness,” the EBRD concludes.