Frontier has revised its baseline growth forecast for 2013 to 6 percent in May, significantly lower than street estimates. The forecast is based on uncertainty over key growth factors. The downward revision reflects the recent trends of negative export growth and sharply weakening FDI inflow. The ramp-up in mineral production of Oyu Tolgoi mine is expected to lift mineral output significantly starting from this summer. But, the start of the commercial production of OT will delay by a few months and that would have large adverse impact to the economy. The economy may be dragged also because majority of public investment using Chinggis bond proceeds will not start this year. 1st quarter GDP has slowed down to around 7%, slowest growth rate since 4th quarter 2010. We expect 2nd quarter GDP will slow down further to only 2%. The growth rate will pick up substantially after the commercial production of OT starts. But, the 3rd quarter GDP might be almost zero if the commercial production of OT delays and ETT’s coal production will not increase so much.
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