Mongolia's economic recovery continues on strong growth

Economy
misheel@montsame.gov.mn
2018-09-26 15:22:18

Ulaanbaatar /MONTSAME/ The Asian Development Bank (ADB) released its annual economic publication, Asian Development Outlook (ADO) 2018 today, on September 26.


Mongolian economy posted strong growth in the first half of 2018 at 6.3 percent, continuing the strong economic performance of 2017, on the back of a robust expansion in investment in the mining sector as well as a surge in consumption propelled by a rise in credit to households.


ADB is revising its growth outlook for Mongolia to reach 6.4 percent in 2018 and 6.1 percent in 2019, exceeding its April estimates of 3.8 percent growth this year and 4.3 percent next year. This upward revision is based on better performance of coal exports and stronger than expected private consumption. Mining investment will continue but a slowdown in the growth of mining investment, however, is expected to temper 2019 gross domestic product (GDP) growth.


"The economy has performed better than expected in 2018,' said ADB Country Director for Mongolia Ms. Yolanda Fernandez Lommen. "Private consumption has been higher than anticipated due to a surge in credit to households. External demand for Mongolian coal has also boosted economic performance and increased revenues, while investment into the mining sector continues to play a key role. Vulnerabilities remain, so continued government commitment to the International Monetary Fund program will be critical in building up economic buffers and signaling to the market that sensible macroeconomic policies are here to stay in Mongolia. Such policies will also be important in ensuring that mining-led growth is sustainable and inclusive, and the conditions are created to support economic diversification and higher productivity growth."


Investment remained the main source of growth, contributing 12.6 percentage points to the country's GDP. Consumption contributed 3.9 percentage points due to the surge in credit to households. Net exports subtracted 10.3 percentage points as imports rose to supply busier mines, outpacing export growth. On the supply side, industry, supported by recovery in mining and expansion in manufacturing, lifted GDP growth by 2.1 percentage points, and services added another 3.7 percentage points. Agriculture's contribution to growth, however, fell to 0.5 percentage points as drought brought livestock losses.



The budget recorded a surplus equal to 2.8 percent of GDP in the first half of the year as revenue substantially outgrew expenditure. The current account deficit widened to 10.7 percent of GDP in the first half of 2018 as a 32.7 percent rise in imports dwarfed 15.7 percent growth in exports. The Mongolian tugrug depreciated by 1.5 percent against the US dollar in the first 8 months of 2018 but rose against the currencies of trading partners in both trade-weighted and inflation-adjusted terms.


Inflation accelerated to average 6.5 percent in the first half of 2018, mainly because food prices rose with drought and higher exports of meat, but also reflecting higher prices for petroleum products. The inflation forecast for 2018 is revised down as pass-through from currency depreciation in 2016 fades, and with the government expected to follow its annulment of excise taxes on fuel with further interventions to stabilize fuel prices. A higher current account deficit is now projected for 2018 as unexpectedly strong economic growth pushes up imports and as mining profits are repatriated, though most profits are reinvested.

Source: adb.org