Mongolia Quarterly Economic Update - August 2011

August 24, 2011

General growth

  • The Mongolian economy is experiencing rapid growth in 2011: the second quarter saw the economy growing at a whopping 17.3% year on year, compared to 9.9% in the first quarter.
  • Transportation and construction sectors grew at 39.9% and 38.4%, respectively, while retail and wholesale trade grew at 24.7%, with Mongolians spending more on consumption as a result of higher incomes.
  • The mining and manufacturing sectors recorded respectable growth rates of 8.3 and 12.9% year-on-year (yoy) in the second quarter, respectively.

Labor Markets and Poverty

  • Unemployment declined from 13% in December 2010 to 8.7% in June 2011.
  • Informal labor markets for unskilled workers are also booming, with real wages nearly doubling between December 2010 and June 2011.


  • Unfortunately, Mongolia is again experiencing high levels of inflation. UB inflation was up 11.4% yoy in July, up from 5.5% in the previous month.
  • Core inflation, excluding volatile energy and food prices, increased even faster, by 13.7% yoy.
  • As the livestock herd continues to recover from the dzud in 2010 and China’s food prices, especially meat, continue to rise (34% yoy in July), food prices are likely to remain high.

External Sector

  • Imports are up by 106%. A booming mining industry, especially the Oyu Tolgoi copper mine, spurred these imports, especially of transport equipment and machinery. This pushed Mongolia’s trade deficit to US$ 1349 million in July 2011.
  • On the export side, coal has surpassed copper as the largest export, comprising 38% of all exports, having grown 129% yoy in July.
  • China is the sole destination for Mongolia’s coal exports and it is the largest thermal coal consumer in the world. Mongolia’s exports of coal are expected to grow with new coal mines coming on board.
  • Crude oil exports were up 42% yoy in June owing to higher oil prices, while copper volumes are declining, as are Chinese metal imports from Mongolia.

Banking Sector

  • Credit in the banking sector is growing very fast. The stock of outstanding loans grew by 46% yoy in real terms in July 2011.
  • It is therefore imperative that the Bank of Mongolia enforces prudential norms on all Mongolian banks, and ensures that they maintain adequate buffer capital to absorb potential losses.
  • The volume of MNT (Mongolian tugrik) deposits reached a record MNT 2.6 trillion in July, a 73% yoy increase.
  • Compared to July 2010, the average monthly exchange rate against the US$ appreciated by about 9%.

Fiscal Developments

  • On a 12 month rolling basis, the fiscal surplus reached 2.7% of GDP yoy in July.
  • Annual revenues and grants grew by 46% in real terms in July yoy, in addition to increases in royalties, VAT, customs duties and corporate income tax.
  • On the expenditure side, there was a very large increase (27% yoy) in expenditures in July, with capital expenditures up by 57% and current transfers up 48%, owing to cash handouts to citizens through the Human Development Fund (HDF).

Economic Outlook

  • Mongolia’s economic outlook depends heavily on global macroeconomic factors: the current uncertainty and poor growth prospects for the global economy are cause for concern.
  • If there is another global recession, Mongolia’s small, open economy will be affected. In that case, China’s policy reaction will be crucial for Mongolia.
  • If China reacts as fast and as strongly as it did in 2008/9 then the effects of a global recession on Mongolia will be mitigated, largely owing to Chinese demand for minerals from Mongolia. Beyond this, it is up to Mongolia to capitalize on its excellent long term prospects by continuing the reform agenda it embarked on during the 2008-2009 crisis.