Montenegro Country Report - November, 2013

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Montenegro Country Report - November, 2013

This report covers the main macroeconomic releases from early till end-November 2013 as well as the financial and political events that took place in Montenegro during this period. The report also includes corporate news covering, among others, the insolvency of mining firm Rudnici Boksita.

At end-November, S&P lowered Montenegro’s rating outlook to negative on high external vulnerabilities. The EBRD and the EC revised their 2013 GDP growth projections for Montenegro upward to 1.5% and 1.9% respectively. The government approved the 2014 draft budget targeting a deficit of EUR 66mn, down from this year’s projected gap of EUR 95mn. Russia's CEAC, one of the biggest shareholders and creditors of bankrupt Montenegrin aluminum firm KAP, said it has filed a EUR 100mn claim against Montenegro.

On the economic front, October’s CPI edged up 0.5% y/y, easing from a 1.8% y/y increase in September due to a slower growth of food prices and falling transport, recreation and communications costs. Industrial production growth accelerated to 10.5% y/y in October from 3.0% y/y in September, due to rising manufacturing output.

Key Points:

• In corporate news, the EBRD has urged Montenegro to resolve as soon as possible the fate of its troubled aluminum firm KAP as a key priority for 2014 because the financial difficulties of the company have already spilled over to the public sector.

• A Montenegrin commercial court decided on Tuesday, November 19, to start insolvency proceedings at bauxite mining company Rudnici Boksita over an unpaid debt of EUR 1.59mn to lender CKB, a local subsidiary of Hungary’s OTP.

• The foreign trade deficit narrowed 4.8% y/y to EUR 1.2bn in the first 10 months of 2013. Net FDI inflow to Montenegro shrank 14.8% y/y to EUR 275.6mn in January–September due to lower equity investments.

Table of Contents

Executive Summary
1. Macroeconomic Overview
1.1 S&P lowers Montenegro’s rating outlook to negative on high external vulnerabilities
1.2 EBRD ups Montenegro’s 2013 GDP forecast to 1.5%
1.3 EC raises Montenegro’s 2013 GDP growth forecast to 1.9%, cuts 2014 projection to 2.3%

2. Real Sector
2.1 GDP
2.1.1 Montenegro's industrial output climbs 10.5% y/y in Oct 2013
2.1.2 Montenegrin govt raises 2014 GDP growth forecast slightly to 3.6%

2.2 Inflation
2.2.1 Montenegro's CPI inflation eases to 0.5% y/y in Oct 2013 on slower food prices
2.2.2 Montenegro's EU-harmonised inflation slows down to 0.3% y/y in October 2013
2.2.3 Montenegro's PPI drops 0.9% y/y in October 2013

2.3 Industry and Trade
2.3.1 Montenegro's industrial output climbs 10.5% y/y in Oct 2013
2.3.2 Montenegro’s industrial sales rise 5.1% y/y in October 2013
2.3.2 Montenegro's retail sales growth eases to 9.9% y/y in Sept 2013
2.3.3 Montenegro's construction sector index increases 2.6% y/y in Jan-Sept 2013
2.3.4 Number of building permits in Montenegro decline 4.1% y/y to 234 in Q3 2013

2.4 Labor market
2.4.1 Montenegro's average net salary drops 1% y/y to EUR 475 in Oct 2013
2.4.2 Montenegro’s unemployment rate rises to 14.9% in early December

2.5 Tourism
2.5.1 Foreign tourists arrivals to Montenegro climb 23.3% y/y to 38,284 in Oct 2013

3. Fiscal Sector
3.1 Montenegro’s government endorses 2014 budget draft, targets lower budget deficit of EUR 66mn
3.2 Montenegro’s Jan-Oct budget gap narrows 16% y/y to EUR 116mn, exceeds annual target
3.3 Montenegro might extend temporary crisis tax on personal income by one year

4. Financial Intermediation
4.1 Lending interest rate in Montenegro drops to 10.75% in Oct 2013
4.2 Montenegro's interest rates on deposits decline to 2.7% in Oct2013
4.3 Combined assets of Montenegro's top 5 banks rise 4% y/y to EUR 2.2bn at end-Sept 2013
4.4 Montenegro’s bank assets rise 5.4% y/y to EUR 3bn at end-Oct 2013
4.5 Montenegro’s bank deposits growth slows to 7.1% y/y at end-October 2013

5. External Sector
5.1 Montenegro sees start of new EUR 3.5bn investment cycle in 2014
5.2 Montenegro’s Jan-Sep net FDI drops 15% y/y to EUR 276mn
5.3 Montenegro’s trade gap narrows 4.8% y/y to EUR 1.2bn in Jan-Oct 2013

6. Structural Reforms And Corporate News
6.1 EBRD approves new 2013-2016 country strategy for Montenegro
6.2 Montenegrin court introduces insolvency at mining firm Rudnici Boksita

7. Political
7.1 Russia's CEAC files EUR 100mn claim against Montenegro over KAP.

Number of pages: 29
Release Date: Wed, 04 Dec 2013