Economic growth in Montenegro continued in the first half of 2024, but at a slower pace, driven primarily by private consumption and a recovery in investments, according to the European Commission’s (EC) Autumn 2024 Economic Forecasts.
The recently adopted Europe Now 2 program, aimed at boosting disposable incomes through a rise in the minimum wage and a reduction in pension contributions, is expected to support GDP growth in 2025, although it may contribute to higher inflation.
Economic outlook for 2024 and beyond
The EC’s forecast highlights Montenegro’s strong fiscal performance in 2024, supported by a sharp rise in revenues. However, the new measures that weaken budget revenues and increase public spending are expected to lead to a significant budget deficit increase in 2025-2026. The public debt is anticipated to rise, alongside high refinancing needs, posing fiscal risks.
For 2023, real GDP growth has been revised upwards to 6.3%, compared to the previous forecast of 6%. However, growth slowed to 3.6% year-on-year in the first half of 2024, with investment recovering at 9.6% and strong private consumption rising by 8.2%, supported by increases in minimum pensions, wages, and employment.
Despite this, the country’s export performance has been weak—especially in electricity exports—and tourism underperformed in Q1 2024, leading to a 10.7% year-on-year drop in real exports. Imports showed a modest growth of 2.1%, contributing negatively to GDP growth. Government spending increased modestly during the period.
Europe Now 2 program and fiscal changes
The Europe Now 2 program, adopted by the Montenegrin parliament in September 2024, introduced two major changes from October: a substantial increase in the minimum wage to an average of €700 (up from €450), and adjustments in pension contributions. Employees’ contributions to the Pension and Disability Fund (PIO) were reduced from 15% to 10%, and employer contributions (5.5%) were eliminated.
The program also aims to accelerate investments in infrastructure projects.
The EC projects that economic growth will pick up in 2025 as these measures are expected to stimulate private consumption and investment. However, growth is expected to slow down in 2026, as the effect of increased wages on new job creation in the service sector may be limited. Exports, particularly in tourism, are expected to support growth during the 2025-2026 period.
Record low unemployment
The employment growth continued across all sectors in 2024, with unemployment reaching a record low of 11.5% in Q2 2024. Employment growth is expected to accelerate in 2025 due to the reduction in pension contributions, but this effect may weaken in 2026 due to slower wage growth, which could dampen job creation, particularly in the service sector.
Inflation trends
Inflation in Montenegro has been on a downward trend throughout 2024, with the year-on-year rate falling to 2% in August. However, inflation is expected to rise in 2025 due to the significant increases in wages and social transfers. It is forecasted to ease in 2026, assuming no changes in fiscal policies.
Fiscal challenges ahead
The Montenegrin government recorded a budget surplus of 1.3% of GDP for the period January-August 2024, exceeding expectations, largely due to strong revenue growth, especially from VAT, excise taxes, and corporate and personal taxes.
Looking ahead, the EC forecasts that the budget deficit will increase due to the significant rise in the minimum wage, regular pension indexation, and reduced revenues from pension contributions. Additionally, the public debt is expected to grow due to new debt issuance required to accumulate reserves and prepare for the upcoming redemption of eurobonds in 2025.
The EC concludes that the overall risk balance for Montenegro’s fiscal outlook is tilted downward, due to structural budgetary changes that weaken the revenue base and increase mandatory spending.
