Softer than expected economic activity in the People’s Republic of China (PRC) and India and concerns about the United States (US) quantitative easing (QE) program has destabilized emerging economy financial markets, including in Mongolia, says a new Asian Development Bank (ADB) report.
“Shifting expectations on the timing of the scaling down of the US Federal Reserve’s QE program sparked the recent exodus of foreign capital from emerging markets, including India, Indonesia and Mongolia,” said ADB Country Director for Mongolia Robert Schoellhammer.
In an update of its flagship publication, Asian Development Outlook 2013(ADO 2013), ADB revised down its 2013 gross domestic product (GDP) growth forecast for the Asia-Pacific region to 6% from 6.6% seen in April, as growth moderates in the region’s two largest economies: the PRC and India. In the PRC, growth is expected to moderate to 7.6% in 2013 from 7.7% last year. The authorities there are engineering a medium-term transition to a more sustainable growth path than one led by exports and investment.
However, the region is in a comparatively strong position to cope with the slowdown, with many economies running current account surpluses and holding large foreign reserve stockpiles. For 2014, growth is now projected at 6.2% from 6.7% in April. Meanwhile, resurgence in the US economy is expected to pick up in the coming months. Signs are also emerging that the euro area is turning the corner, and Japan’s economic growth is accelerating.
For Mongolia, growth is forecasted to slow to 12% in 2013 and 13% in 2014, supported by the modest recovery in the global economy and the start of commercial mining at the vast Oyu Tolgoi copper and gold mine. The short- to medium-term prospects for the Mongolian economy are subject to trends in the PRC and the global economy, and expansionary fiscal policies historically make it vulnerable to external shocks.
While consumer inflation slowed to 10.1% year-on-year in the first eight months of 2013 from 14.2% a year earlier, inflation picked up again in August, rising to 9.4% from 8.3% in July. The recent tugrik depreciation, which follows an extended period of high inflation in Mongolia, will increase the competitiveness of the non-mining export sector and support production and employment, but also create further inflationary pressures.