The International Monetary Fund said in a report released on Tuesday that economic growth in the Caucasus and Central Asia is still strong but is expected to decline to six percent in 2014 as a result of weaker activity in Russia and other emerging markets.
The IMF's Regional Economic Outlook Update for Caucasus and Central Asia (CCA) also said slower growth prospects in the region's main trading partners-Russia, China and Turkey-will impact exports, foreign direct investment and remittances.
Geopolitical risks related to the crisis in Ukraine could also affect the CCA, weighing on trade, remittance and financial channels, as well as possible disruptions in production or transportation of commodities, according to the IMF.
The report said many of the gas- and oil-importing countries in the region have low fiscal and external cushions to draw on, despite the strong growth of recent years.
Inflation, which is expected to rise by 1.5 percentage points to reach 7.5 percent in 2014-15 due to the recent currency depreciation in Kazakhstan and strengthening domestic demand in Georgia, is another factor in the outlook for the CCA.
In countries where inflation is expected to stay within central bank target ranges, monetary policy can remain at a neutral setting, but the region's central banks should be prepared to tighten policy if inflation pressures build up more quickly than expected, the IMF said.
The report said most of the CCA countries could begin fiscal consolidation, strengthen monetary policy frameworks and strengthen financial regulatory and supervisory policies.
In the meantime, the IMF said the region could focus on measures to raise potential growth, improve competitiveness and build resilience to unexpected economic shocks.
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