Montenegro is an upper-middle-income country with enormous growth potential. Montenegro has been engaged in activities with the World Bank Group (WBG) since 2001 and became a member in 2007. While Montenegro’s economy has huge potential, it is hindered by significant structural, economic, and fiscal risks. The global economic crisis exposed some pre-existing fissures in the foundation of Montenegro’s economy and the combination of a series of economic developments has caused a deeper recession in the country than previously anticipated.
Montenegro’s use of the Euro has helped shield the country from the worst effects of the 2008 financial crisis. Using the Euro as the sole currency has also required policymakers to adopt sound fiscal policies and a legal and institutional framework that encourages private sector activities, while simultaneously addressing the root causes of fiscal imbalances and macroeconomic misalignments in the country.
Annual growth in the period leading up to the global financial crisis averaged almost 9% from 2006-08. However, the combined impact of reduced access to credit and loss of export markets, together with eroding confidence and escalating labor conflicts, led to a severe recession in 2009 - with the output contraction of 5.7%. Following this decline, economic growth in the country averaged 2.9% between 2010-11 before slowing significantly in 2012 - due to the sluggish credit activity, adverse weather conditions that reduced energy production, the bankruptcy of a major steel mill company, and the production decline at a loss-making aluminum plant. In 2013, the economy returned to robust growth, recovering the output lost since 2008. Inflation declined to 2.2% in 2013 - down from 4.1% in 2012 - reflecting the dissipating effect of food and oil prices. Growth is expected to rise to around 3.2% from 2014-2016, supported by Foreign Direct Investment in tourism and energy, as well as public investments.
As part of the country’s European integration efforts, Montenegro opened formal membership negotiations with the European Commission (EC) in 2011. Montenegro was also granted membership status into the World Trade Organization (WTO) in 2011. In June 2012 the country began accession talks with the European Union (EU).