The latest Asian Development Outlook (ADO) 2019 update highlights solid economic growth for Mongolia through 2020 with a minute dip in the remainder of 2019 due to lower demand in China.

The annual economic publication was introduced by ADB’s Country Director for Mongolia Yolanda Fernandez Lommen and senior country economist Declan Magee on Wednesday. They stated that Mongolia’s economic growth has been projected at 6.7 percent in 2019 and 6.1 percent in 2020, from the 7.2 percent growth rate recorded in 2018.

Growth in the first half of 2019 was boosted by strong domestic demand and expanding mining and construction sectors, as emphasized by Magee. However, the economic growth is expected to ease for the rest of the year due to lower demand in China and import growth fueled by domestic demand.

“Economic growth was faster than expected in the first half of 2019,” said Lommen. “Mongolia’s growth prospects continue to be positive going into 2019 and 2020, although slowing growth in China will have an impact on Mongolia’s export sector. Should the government build on the strong macroeconomic performance since 2017, this will help sustain investor confidence and improve macroeconomic stability. Mongolia remains vulnerable to external shocks, particularly in the commodity sector, so sensible macroeconomic policies that allow the country to build up buffers will help reduce Mongolia’s vulnerability to boom-bust cycles going forward. Structural reforms, particularly in the banking sector, remain important, and using this high growth period to address these issues would make sense.”

Apart from domestic demand, foreign direct investment continues to play an important role and this is set to continue. Services will continue to be important to growth, while agriculture is expected to continue its recovery.

“Average inflation rose by 8.1 percent year-on-year in June and will average 8.5 percent in 2019 due to rising domestic demand and higher food prices. These effects will be less pronounced in 2020, allowing inflation to ease to 7.5 percent. The current account deficit narrowed to 10.2 percent in the first half of 2019 and import demand will mean that it will widen further in 2020. The budget recorded a surplus of 4.7 percent of gross domestic product in the first half of 2019 and credit expansion eased with the growth of newly issued loans remaining moderate at five percent in the first six months. Nonperforming loans climbed to 10.6 percent of total outstanding loans,” listed Magee.

The ADB economist advised Mongolia to speed up economic diversification efforts and increase trading countries to protect itself from risks posed by the ongoing global trade disputes. Magee reminded the importance of keeping close relation with China as it is one of Mongolia’s most important export markets. This will minimize negative impacts from China-US trade war.