Montenegro Country Report - November, 2014

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Montenegro Country Report - November, 2014

This report covers the key macroeconomic and financial releases as well as the political events from Montenegro for the period of November 6, 2014 - December 5, 2014.
Montenegro should try to raise additional revenue and also implement cost-cutting measures in order to maintain its fiscal discipline and avoid a dramatic increase of its public debt, the IMF said in a concluding statement to its Article IV consultations. Standard & Poor's cut Montenegro's long-term foreign and local currency sovereign credit ratings to B+ from BB- with stable outlook, saying that the debt-financed construction of the Bar-Boljare highway will elevate its fiscal and external risks.
The local Financial Stability Council warned that Europe's faltering recovery, exhibited by the eurozone's flat Q2 GDP growth, poses risks to Montenegro's economic growth outlook for 2014, partially due to potentially weaker-than-expected tourism revenue.

Key points:

• Nine-month budget gap narrows 78% y/y to €24.7mn
• Industrial output growth quickens to 8.2% y/y in October
• Unemployment rate rises to 14.95% as of December 1
• NPL ratio edges up to 16.46% in October


Table of Contents

EXECUTIVE SUMMARY 3
REAL SECTOR 4
1. GDP 4
IMF advises Montenegro to keep fiscal discipline in light of major road infrastructure project 4
Meager eurozone recovery poses risks to Montenegro's 2014 economic growth outlook 4
2. Inflation 5
Consumer price deflation eases to 0.5% y/y in October 5
EU harmonised deflation softens to 0.8% y/y in October 5
PPI inflation ticks up to 1% y/y in October 6
3. Industry and Trade 6
Industrial output growth quickens to 8.2% y/y in October 6
Montenegro's retail sales rise for eight straight month in September 7
Montenegro's industrial sales inch up 0.5% y/y in October 7
Montenegro’s Jan-Oct trade gap widens 2.8% y/y on lower exports 8
4. Labour Market 8
Monthly average net wage up 0.6% y/y in October 8
Unemployment rate rises to 14.95% as of December 1 – employment agency 9
Public spending on pensions to fall to 11.4% of GDP in 2014 9
Montenegro needs to speed up reforms to improve local labour market – EU delegation head Drobnic 9
5. Tourism 10
Foreign tourist arrivals to Montenegro increase 4.6% y/y in October 10
FISCAL SECTOR 10
Jan-Oct budget gap narrows 78% y/y to €24.7mn 10
2015 budget bill cuts spending on public sector wages by €7.3mn 11
Montenegro's government approves 2015 budget draft, sets deficit at 6.7%/GDP 11
FINANCIAL INTERMEDIATION 12
Average lending interest rates in Montenegro fall to 9.7% in October 12
NPL ratio edges up to 16.46% in October – c-bank 12
STRUCTURAL REFORMS AND CORPORATE NEWS 12
S&P cuts Montenegro's ratings to B+ on elevated risk of deteriorating fiscal, debt metrics 12
EC expects Montenegro to strengthen rule of law by end-2015 13
Montenegro falls to 76th place in Transparency International 2014 global corruption index 14
Montenegro to invest €33mn in regional development, human resources projects 14
Qannas Investments agrees to buy €11mn equity share in developer of Atlas Capital Centre in Montenegro 14
Montenegro's coalition partners fail to agree on terms of prospective €300mn UAE investment 15

Number of pages: 15
Release Date: Mon, 15 Dec 2014