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Montenegro’s economic expansion: Analyzing spending strategies for long-term viability

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Director of the Institute for Strategic Studies and Projections (ISSP), Dr. Jadranka Kaluđerović, has evaluated the recent growth in Montenegro’s GDP in the third and fourth quarters of last year. She emphasized that economic growth primarily fueled by increased personal and government spending may initially seem beneficial as it stimulates economic activity and can lead to short-term improvements in economic indicators. However, she cautioned that this type of growth may be unsustainable and does not necessarily reflect a healthy economy in the long run.

Kaluđerović pointed out that the current growth in both personal and government spending is predominantly driven by increased public debt, which could burden both the economy and citizens, potentially making the state and its people vulnerable to financial crises and recessions. She warned that such consumption-led growth relies on continuous borrowing and spending beyond means, which could result in higher taxes or cuts in essential services. Additionally, excessive consumption could lead to inflation and erode purchasing power over time.

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Furthermore, she stressed the importance of the purpose of spending, noting that an emphasis on consumption growth to demonstrate current GDP growth may divert resources away from investments in productive assets such as technology, infrastructure, and education, which are crucial for long-term economic growth and competitiveness.

While current consumption plays a crucial role in stimulating economic activity, Kaluđerović emphasized the need for a balanced approach that also prioritizes investments and sustainable growth.

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Montenegro’s GDP increased by 4.3% in the fourth quarter of last year, according to preliminary data from Monstat, reaching €1.75 billion, while the real GDP growth rate in the third quarter was 6.6%.

Kaluđerović highlighted that positive GDP growth rates indicate increased production of goods and services, higher profits for companies, and a rise in employment.

Montenegro, along with Malta and Croatia, led the international review of real GDP growth rates, all growing at a rate of 4.3%. Among regional countries, Serbia grew by 3.8%, Slovenia by 2.2%, and North Macedonia by 0.9%.

Regarding tourism’s role in growth rates, Kaluđerović noted that countries with significant tourism contributions experienced higher growth rates, attributing Montenegro’s position near the top of growth rates to this factor. She also emphasized the impact of foreign visitors’ spending in Montenegro.

In terms of consumption, data showed growth in all categories of both personal and government spending, particularly pronounced during the summer season, resulting in an increase in economic activity. However, Kaluđerović cautioned that GDP growth does not necessarily translate to an improvement in every citizen’s standard of living, as it depends on various factors such as employment and business profitability.

She underscored that for the state, a higher GDP means increased tax revenue and reduced need for borrowing. How the state allocates its resources—whether towards investments or current expenditures—will determine the effects on citizens’ quality of life.

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