Mongolia’s economic contraction continues to deepen due to the ongoing impacts of the COVID-19 pandemic, but it will recover in 2021 as regional economies rebound, says a new report by the Asian Development Bank (ADB).
In its “Asian Development Outlook (ADO) 2020 Update”, ADB projects Mongolia’s economic growth to further reduce to -2.6 percent in 2020, a downgrade compared to the 2.1 percent forecast in April and -1.9 percent in June, before rebounding to 5.1 percent in 2021.
“Mongolia was able to contain the pandemic but could not avoid the associated economic cost,” said ADB’s Country Director for Mongolia Pavit Ramachandran. “The external economic shock has left the economy in deep recession, and careful management of macroeconomic fundamentals will be required for recovery.”
GDP contracted by 9.7 percent in the first half of 2020 mainly because COVID-19 substantially reduced exports and capital inflows. Declines in mining, manufacturing, construction, transportation, trade, and services dragged down GDP growth, leaving agriculture as the only positive contributor. Merchandise trade turnover shrank by 16.6 percent year-on-year in the first seven months of 2020.
Meanwhile, average annual inflation fell from 7.1 percent in the first half of 2019 to 6.1 percent in the same period of 2020 – further below the 8 percent target set by Mongol Bank – as high food inflation was tempered by reduced domestic demand and prices for transportation and recreation. ADB expects the weak demand to keep inflation lower than earlier forecast this year, but revived demand and imported inflation to push it higher.
“Some signs of recovery in China and significant rebounding of copper and gold prices implies that exports and mining output will pick up in the second half. Fiscal space for stimulus is in short supply this year, and balance of payments and exchange rate concerns are likely to rule out further easing of monetary policy,” says ADB.
An external downside risk to the outlook would be delayed economic recovery globally or regionally as the pandemic containment drags on. Domestic risks include unemployment, potentially unstable finances, and inconsistent macroeconomic policy deepening pressure on the balance of payments.
