The growth of Gross Domestic Product (GDP) is crucial for any country, but if it fails to translate into improved quality of life for citizens, such growth may be of little value and could even harm the economy, according to Prof. Dr. Vasilije Kostić, President of the Montenegrin Employers’ Association. He commented on Montenegro’s GDP growth of 6.3 percent last year, with a more modest increase of 2.7 percent recorded in the second quarter.
Kostić explained that the economic indicators for the second quarter reflect trends consistent with past performance and are unlikely to change in such a short timeframe.
“A GDP growth of 2.7 percent is relatively low, particularly since the second quarter typically doesn’t see high growth rates due to the seasonal nature of our economy. Furthermore, the European economy is experiencing a slowdown due to anti-inflation measures and other factors, likely contributing to our lower growth rate. However, neighboring countries are achieving significantly higher growth rates in the same period, albeit with different economic characteristics,” he noted.
Economic data insights
According to Monstat, last year Montenegro’s GDP reached 6.96 billion euros, up from 5.92 billion euros the previous year. In terms of economic growth, Montenegro ranked second in Europe, behind Malta’s 7.5 percent increase, with Iceland and Turkey following at 5 percent and 4.5 percent, respectively. In the region, Croatia grew by 3.1 percent, Serbia by 2.5 percent, Slovenia by 2.1 percent, Bosnia and Herzegovina by 1.7 percent and North Macedonia by 1 percent.
Kostić emphasized the connection between this data and the country’s foreign trade, which reached 2.67 billion euros in the first seven months, marking a 2.9 percent increase from the same period last year—an increase that mirrors the economic growth rate.
“This highlights a long-known fact: our economy is heavily reliant on consumption, which inflates GDP growth. Due to the inadequate structure of our economy and a high dependency on imports, most of the growth in economic activity is linked to imports, resulting in a widening trade deficit. Consequently, this growth may actually hinder our long-term development. The significant trade imbalance, approximately 2.3 billion euros, places additional pressure on the budget deficit. This creates a serious challenge that must eventually be addressed, as domestic demand is largely satisfied through imports, adversely impacting macroeconomic indicators. Notably, imports have risen by around 8 percent while exports have plummeted by 22 percent, resulting in minimal coverage of imports by exports at about 14 percent,” Kostić explained.
Challenges for public finances
When asked about future economic expectations, Kostić acknowledged that GDP growth is likely to increase due to seasonal factors but remains uncertain in light of unfavorable external influences.
“Domestic demand is expected to rise, particularly as wages increase, which will likely spur economic growth in the near term. However, the benefits of such growth are questionable. Looking ahead, we do not expect particularly dynamic economic growth due to various known factors, especially not at rates that would assure stability for public finances,” he assessed.
He stressed the need for growth, particularly to enhance public revenues, given the current consumption levels that are unsustainable for the country.
“Healthcare and pensions will demand high public revenues, which are unattainable without economic growth. Thus, from this standpoint, we need robust growth rates—at least 5 percent, which is substantial. Last year, we achieved a growth rate of 6.2 percent, one of the highest in Europe. While economic growth is essential, the structure of our economy and the prevailing growth model are exacerbating macroeconomic issues (such as imports, exports, and deficits), creating a challenging scenario that feels like solving a ‘quadrature of the circle,'” Kostić concluded.
