Industrial output in the first ten months of 2010 rebounded by 11.9% year on year. After declining by 14.4% year on year in the first quarter, growth in industrial output returned at a rate of 22% year on year in the second quarter, accelerated to 41.7% in the third quarter, and continued at 37.1% in October. The improvement in industrial performance was driven by a surge in output in the energy and in the mining and quarrying sectors. The expansion in the energy sector was helped by the privatisation of the state-owned energy company, Elektroprivreda Crne Gore (EPCG), and the ensuing investments in boosting capacity. The increase in electricity generation-with two-thirds of Montenegro's output provided by the hydropower stations at Perucica and Piva and one-third by the thermal plant at Pljevlja-accelerated from 22% year on year in the second quarter to 41.7% in the third quarter and to 50% in October. Electricity output in the first ten months of 2010 was 48.2% higher than a year earlier and was well above projections.

The robust rebound in production, coupled with sluggish domestic demand, made it possible for Montenegro to export electricity for the first time in several years. The prospects for medium- and long-term growth in the energy sector received a boost in late November with the signing of an agreement on the construction of a 450-km energy-interconnector-cable linking Montenegro and Italy under the Adriatic Sea. The project, worth around EUR860m, involves building additional grid infrastructure to link Montenegro with Bosnia and Hercegovina (BiH) and Serbia, which will turn Montenegro into a key energy hub in the region in a few years' time.

Manufacturing performance improved markedly in the course of 2010, with the decline in output slowing from 31.3% year on year in the first quarter to 5.1% in the second quarter, before growth returned at a rate of 4.3% year on year in the third quarter and 21.6% in October. The improvement reflected strong results in chemicals and mineral products and a modest rebound in the key sector, basic metals, which accounts for around one-half of manufacturing output. Output of basic metals rose by 1.7% year on year in August-marking the first increase since early 2008-before declining by 1.5% in September and expanding again by 17.2% in October. After more than two years of continuous decline, associated with the collapse of output at the troubled Podgorica Aluminium Plant (KAP), the output of basic metals in January-October 2010 was around one-third of the pre-crisis level achieved in the same period in 2007.

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