Montenegro’s economy continues to expand, with rising wages and a decline in unemployment to its lowest level since gaining independence. However, this growth is accompanied by a significant external imbalance, as the nation is consuming and importing substantially more than it produces and exports.
The current-account deficit has escalated to 20.5% of GDP in 2025, up from 17.1% in 2024 and 11.2% in 2023. This shift indicates that the external shortfall has increased from approximately one euro in nine of annual output to over one euro in five within two years. For a small euroized economy lacking an independent currency or traditional monetary policy, this figure signals potential vulnerabilities in Montenegro’s growth strategy.
The factors contributing to this imbalance are identifiable. Private consumption rose by 5.3% in 2025, driven by increased wages, employment, and household borrowing. While gross fixed investment grew by 11%, much of this investment relied on imported machinery, construction materials, and consumer goods. Consequently, imports surged alongside domestic demand, while exports remained largely limited to tourism, electricity, and a few low-complexity products.
The severity of the imbalance became particularly evident in the last quarter of 2025. Imports of goods and services reached €1.4 billion, contrasting sharply with exports of only €617.8 million. This resulted in a net external deficit of around €785 million, equivalent to nearly 39% of quarterly GDP. Notably, final consumption surpassed the total quarterly output of the economy, with the gap bridged by investment flows, borrowing, and external financing.
Tourism’s ability to offset the import costs has diminished. In 2025, Montenegro welcomed 2.73 million tourists, a rise of 4.7%, while tourism revenue increased by only 1.4% to reach €1.48 billion. Although these figures are substantial for a population of around 600,000, the modest revenue growth relative to tourist arrivals suggests that increased visitor numbers are not translating into higher spending per person.
The tourism sector itself is also heavily reliant on imports. Hotels, restaurants, retail operations, and construction projects depend significantly on imported goods such as food, beverages, furniture, vehicles, technology, and building materials. A successful tourism season thus tends to elevate both service exports and merchandise imports. While the net effect remains positive, it is less substantial than gross tourism revenue might indicate.
The early months of 2026 showed little sign of reversing the underlying trade weaknesses. Merchandise exports fell by 15.2% year-on-year to €127.3 million in the first quarter, while imports were close to €944.5 million. A decline in exports of bauxite, transport equipment, and pharmaceutical products overshadowed slight increases in electricity and food exports.
Foreign direct investment (FDI) plays a role in financing this gap but does not cover it entirely. Montenegro recorded net FDI of €530.7 million in 2025, reflecting an increase of 8%, with gross inflows reaching €1.02 billion. However, estimates from the European Bank for Reconstruction and Development (EBRD) suggest that net FDI covers only about one-third of the current-account deficit. Additionally, gross FDI includes property purchases and intercompany transactions that do not necessarily enhance the country’s export capacity.
The nature of investments is critical as well as their volume. Investments aimed at coastal properties may bolster construction activities, tax revenues, and employment but also drive demand for imported materials without generating significant recurring export income post-construction. Conversely, investments in electricity generation, logistics, digital services, agriculture, or export-focused enterprises can yield sustained foreign-currency revenue or decrease import dependency.
Recent statistics indicate a potential tightening in the financing environment. In the first four months of 2026, net FDI declined by 7.1%, while gross inflows dropped by 26.8%. This decline was partly due to higher capital outflows for intercompany loan repayments but highlights how swiftly financial balances can shift.
The adoption of the euro mitigates currency risk and has bolstered confidence; however, it limits Montenegro’s ability to adjust through exchange rate mechanisms available to countries with their own currencies. Instead of conventional depreciation—which would make imports pricier and exports more competitive—Montenegro must address imbalances through productivity enhancements, wage adjustments, fiscal policy changes, and alterations in investment structures.
The government anticipates GDP growth of 3.1% in 2026, with domestic demand projected to rise by 3.2%, contributing 4.1 percentage points to overall growth. This projection underscores a critical challenge: while consumption and investment can sustain economic activity, without improved export performance part of that demand will continue to leak abroad via imports.
The solution does not lie in reducing household living standards but rather enhancing supply-side capabilities to support them sustainably. Montenegro requires increased domestic food production, higher-value tourism offerings, renewable energy sources, improved rail and port logistics systems, scalable digital enterprises, and businesses capable of integrating into EU supply chains. Enhancements to infrastructure such as the Port of Bar and the Bar–Belgrade railway could facilitate these developments if paired with companies capable of leveraging such improvements.
The current-account deficit does not signal an immediate crisis for Montenegro; access to investments and external financing remains intact alongside a credible path toward EU accession. However, a deficit reaching 20.5% of GDP offers minimal protection against adverse conditions such as poor tourism seasons or rising energy costs—necessitating that Montenegro enhances its production capacity to sustain its consumption boom.
