ADB: GDP growth of Mongolia will accelerate to 2.5 percent this year

Ulaanbaatar /MONTSAME/ Growth is picking up in two-thirds of economies in developing Asia, supported by higher external demand, rebounding global commodity prices, and domestic reforms, making the region the largest single contributor to global growth, says a new Asian Development Bank (ADB) report. In its new Asian Development Outlook (ADO) 2017, ADB forecasts gross domestic product (GDP) growth in Asia and the Pacific to reach 5.7% in 2017 and 2018, a slight deceleration from the 5.8% registered in 2016. ADO is ADB’s flagship annual economic publication. “Developing Asia continues to drive the global economy even as the region adjusts to a more consumption-driven economy in the People’s Republic of China (PRC) and looming global risks,” said Yasuyuki Sawada, ADB’s Chief Economist. “While uncertain policy changes in advanced economies do pose a risk to the outlook, we feel that most economies are well positioned to weather potential short-term shocks.” Industrial economies are gathering growth momentum, with the US, euro area, and Japan expected to collectively grow by 1.9% in 2017 and 2018. Rising consumer and business confidence and a declining unemployment rate have fueled US growth, but uncertainty over future economic policies may test confidence. The euro area continues to strengthen, but its outlook is somewhat clouded by uncertainties such as Brexit. Meanwhile, Japan remains dependent on its ability to maintain export growth to continue its expansion. The PRC’s growth continues to moderate as the government implements measures to transition the economy to a more consumption-driven model. Overall output is expected to slow to 6.5% in 2017 and 6.2% in 2018, down from 2016’s 6.7%. Efforts to maintain financial and fiscal stability will continue to be a modest drag on growth going forward, but continued structural reform will help to maintain growth in the government’s target range. In Mongolia, GDP growth will accelerate this year to 2.5% on large mining investments, then moderate to 2% in 2018 as coal production reaches full capacity. Inflation will rise in both years but remain moderate, and the current account will remain in deficit on the surge of imports for mining works. Cooperation with the international community is the key to addressing financing gaps and preserving economic and social stability and fostering economic growth. Looking ahead, Mongolia’s long-term prospects are promising. Large ongoing mining projects are expected to turn the balance of the fiscal budget and the balance of payments into surpluses in the years ahead. While successfully managing this mineral wealth is a key for Mongolia’s future, ensuring macroeconomic stability and making mining-led growth sustainable and inclusive are among the greatest development priorities, in addition to economic diversification and higher productivity growth. Regional consumer price inflation is projected to accelerate to 3% in 2017 and 3.2% in 2018 from the 2.5% registered in 2016 on the back of stronger consumer demand and increasingly rising global commodity prices. Inflation projections for the next 2 years, however, are well below the 10-year regional average of 3.9%. Risks to the outlook include higher US interest rates, which will accelerate capital outflows, although this risk is mitigated to some degree by abundant liquidity throughout the region. The effects of US monetary policy tightening are likely to materialize only gradually, giving governments in Asia and the Pacific Time to prepare adequately. Economies with flexible exchange rates may experience deeper currency depreciation and subsequent higher inflation, while managed currencies will tend to forfeit export price competitiveness. On the domestic front, rising household debt in some Asian economies is a rising risk. Authorities can counter this risk through prudent macro prudential policies, such as requiring tighter debt-to-income ratios for loans. Authorities may also have to intervene more decisively in housing markets to cool speculative demand and head off asset bubbles. ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB is celebrating 50 years of development partnership in the region. It is owned by 67 members—48 from the region. Source: Asian Development Bank Mongolia Resident Mission