Mongolian GDP grew 17+% in 2011, could rise to between 20% and 46% in 2012; Inflation trends upward as IMF warns of excessive expansion 

Mongolia booming economy, driven only  in part by rapid expansion in the mining sector, produced a sizzling 17.3% growth in real GDP for  2011 , according to preliminary estimates by Mongolia’s National Statistics Office. Mining was not the entire story: wholesale and retail  trade grew 42.5%, manufacturing 16%, construction 14.3%. According to the preliminary report, mining and quarrying showed 8.7% growth. This figure does not reflect the huge capital investments in mines, like Oyu Tolgoi LLC, that have not yet start producing.  Various estimates by foreign business observers and international organizations speculate that GDP growth in 2012 will be at least 20% and could soar as high as 46%.

Inflation is edging up as well. The Bank of Mongolia reported at the end of December 2011 that inflation in Ulaanbaatar increased 12.3% year-on-year; nationwide inflation was 10.2% year-on-year. The IMF calculated inflation as 14%.  Both the Bank of Mongolia and the IMF have warned the Government of Mongolia about inflationary risks. The IMF said that the rapid increases in government spending could push inflation above 18% in 2012 from 10.2% last year. In November 2011, the IMF cautioned that  macroeconomic policies were too expansionary, creating inflationary pressures and also increasing the economy’s vulnerability to external  shocks, such as sharp declines in global mineral prices. The IMF advised that the GoM’s first priority ought to be restraint in government spending and tightening monetary policies in order to  cool down  the overheated economy and provide some insurance against future commodity price shocks. The IMF estimated that in 2011, Mongolian Government spending jumped 50 percent in real terms.

Pebble crusher & ore tunnel at OT

OT coarse ore storage facility under construction