Mongolia Takes A Beating As China’s Commodity Hunger Declines
Copper-rich Mongolia is expected to take the worst beating.
The US and Japan-led bank cut its growth forecast for China to 6.8% from 7.2%, in its new Asian Development Outlook.
Mongolia, exporter of gold and copper, is expected to suffer 2.7 percentage-point drop in GDP due to a 0.2 percentage-point drop in China’s expansion.
“The country expected to be most effected by China’s falling growth is Mongolia,” the bank’s chief economist Shang-Jin Wei told reporters in Hong Kong. “It’s a pretty big number.”
Copper constitutes 36% of Mongolia’s exports, which makes the country highly exposed to external shocks arising in world commodity markets.
Mongolia stood out in the analysis because of its strong direct export links with China. Exports of copper provide 16.4% of its GDP, and crude oil and iron ore are other major components of its exports to China, it said.
Kazakhstan, which sells piping oil, is expected to lose 0.5 percentage point. Growth implications for commodity exporters include both reduced trade and a fall in global commodity prices, it said.
Asian Development Bank said softer growth prospects for China and India, and a slow recovery in the major industrial economies, will combine to push growth in developing Asia for 2015 and 2016 below previous projections.
“A shock to commodity demand and prices emanating from a growth slowdown in the PRC […] poses policy challenges to some commodity-exporting economies in developing Asia ,” the bank said.
“Maintaining flexible monetary and fiscal policy can help buffer effects on the economy in the short run. Over a longer term, though, analysis highlights the need for structural reform to diversify production and exports and to reduce overreliance on trade in primary commodities.”
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