About ADB’s forecast on Mongolian economy

Ulaanbaatar /MONTSAME/ Developing Asia will extend its steady economic growth in 2014 as higher demand from recovering advanced economies will be dampened somewhat by moderating growth in the People’s Republic of China (PRC), says a new Asian Development Bank (ADB) report. ADB’s flagship annual economic publication, Asian Development Outlook 2014 (ADO), released on Wednesday. It forecasts developing Asia will achieve gross domestic product (GDP) growth of 6.2% in 2014, and 6.4% in 2015. The region grew 6.1% in 2013. The recovery in the major industrial economies is gaining momentum. Combined GDP growth in the United States, the euro area, and Japan is expected to pick up to 1.9% in 2014 from 1.0% in 2013 before strengthening further to 2.2% in 2015. Growth in the PRC is expected to moderate. The economy slowed to 7.7% in 2013 on impacts from tightened credit growth, pared industrial overcapacity, deepening local government debt, rising wages, currency appreciation, and the continuing shift in the government’s development priorities away from quantity toward quality. These factors persist and PRC growth is forecast to slow to 7.5% in 2014 and 7.4% in 2015. While risks to the international outlook have eased, three areas warrant close monitoring. First, if efforts in PRC to curb credit expansion are too abrupt and excessively undermine growth, a deeper slowdown could drag down prospects for its trade partners, including Mongolia. Second, data on the recovery in the major industrial economies have been mixed; pointing to the possibility that demand for the region’s goods from these countries may be softer than envisaged. And third, a further shock to global financial markets from changes in US monetary policy cannot be ruled out. For Mongolia, economic growth is forecast at 9.5% in 2014, driven by the start of copper production at the Oyu Tolgoi open pit mine last year and 10% in 2015. Rapidly declining foreign direct investment, falling coal exports, compounded by highly expansionary fiscal and monetary policy have created balance-of-payment (BOP) pressures. While the depreciation of the togrog has already stabilized the current account deficit, relieving BOP pressures, stabilizing the togrog and containing inflation will require a tightening of economic policy to rein in domestic demand growth. Mongolia’s economic prospects also remain highly vulnerable to economic trends in the PRC and the global economy, while current policies offer little buffers to cope with possible external shocks.