The European Commission projects Montenegro’s economic growth at 3% in 2025 and 3.2% in 2026, while anticipating increases in imports, budget deficits, and public debt.

This year’s growth forecast is lower than last November’s estimates, when the EC predicted a 4.2% increase in Montenegro’s gross domestic product (GDP). The following year shows a slight improvement, with a 3.2% growth expectation following a 3% decline.

The latest spring economic forecasts from the EC indicate that the full-year implementation of the “Europe USA 2.0” initiative—which includes reductions in pension contributions and increases in minimum wage—should stimulate private consumption and investment this year.

However, the positive impact on private consumption is expected to diminish in 2026, although investment growth is likely to persist, driven by major infrastructure projects in road and rail corridors, according to the EC.

A decline in exports is anticipated in 2025 due to the planned temporary closure of the Pljevlja Thermal Power Plant, while growth in export services, particularly tourism, is predicted to remain limited. A modest recovery in exports is expected in 2026, supported by a partial resurgence in export services. Import growth is also projected for 2025-2026, driven by domestic demand and additional electricity imports resulting from the power plant’s closure.

The EC’s new report also highlights a rise in the current account deficit for 2024, driven by reduced goods exports and a weak tourist season, while primary and secondary income surpluses align with slow EU economic growth and declining remittances.

An escalation of the current account deficit is forecasted for 2025-2026 due to poor export performance and increasing imports stemming from strong domestic demand.

The EC notes that Montenegro’s economic growth in 2024 was hindered by low exports, even as private consumption and investment recoveries supported overall economic activity. Recent policies aimed at raising minimum wages and lowering pension contributions are expected to boost GDP growth in 2025, but they may also lead to increased inflation.

The general government’s budget deficit in 2024 aligned with revised targets. The implementation of these strategies is expected to lead to spending reductions, ultimately causing larger budget deficits in 2025-2026 and rising public debt, according to the EC.

Domestic demand remains a pivotal growth driver

Real GDP growth for 2024 was reported at 3%, as noted by the EC.

“Economic growth was spurred by an investment recovery (up 9.7%), leading to increased electricity production. Nonetheless, lower seasonal tourism and a 5.5% decrease in goods and services exports resulted in a negative net export contribution to GDP. Government consumption saw a moderate increase,” the EC’s forecasts state.

Unemployment rate continues to decline

Employment growth persisted across all sectors in 2024, with the unemployment rate dropping to a record low of 11.5%. A slight acceleration in employment growth is expected in 2025 due to reduced pension contributions and the initiation of new investment projects.

“This effect may weaken in 2026 as rising wages could limit job creation in the service sector,” the EC notes.

Domestic policy measures induce inflationary pressures

Inflation decreased to 1% in September 2024 but rose to 2.8% by February 2025, according to the EC.

The deceleration of inflation in 2024 was attributed to falling food and energy prices, while core inflation (excluding food and energy) remained high at around 5%. For 2025, consumer prices are expected to stabilize, influenced by domestic factors like increased wages and social transfers, despite potential negative impacts from import prices. A decrease in inflation is anticipated for 2026, provided there are no significant policy changes.

Negative risks dominate the economic forecast

While Montenegro’s economic ties to the United States are limited, key negative risks include an uncertain global landscape and potential declines in exports, the EC cautions.

“A narrow export base and small economy render it highly susceptible to fluctuations in international demand,” they emphasize.

Fiscal balance determination

The budget deficit for 2024 was recorded at 3.1% of GDP, nearing revised goals but reflecting significant deterioration from 2023 due to increased social transfers, capital expenditures, and a decline in one-time revenues.

“Looking ahead, the general government deficit is expected to shrink revenues due to cuts in pensions and rising public debt. Without robust compensatory measures, public debt may rise to 64.5% of GDP by 2025, driven by new borrowing needed to bolster foreign exchange reserves and service maturing Eurobonds between 2025-2026,” the EC states.

Overall, fiscal risks are assessed as negatively balanced due to structural budget changes that have weakened revenue generation while raising mandatory expenditures.