Developing countries in Asia have the capacity to remain stable should the ongoing crisis in Europe transform into another global economic meltdown, says the Asian Development Bank.
In the paper titled “Economic Impact of Eurozone Sovereign Debt Crisis on Developing Asia,” the ADB said a deterioration in the eurozone condition would drag the growth of Asian economies lower but only to a manageable extent.
“The euro crisis is still far from fundamentally resolved and its evolution will clearly impinge heavily on its future impact. [However], our analysis of the impact of a euro crisis on developing Asia points to a sizable but manageable short-term impact,” said the paper.
The ADB said developing countries in Asia would continue to be affected by the unfavorable developments in the eurozone, particularly in foreign trade. Developing Asia’s export growth may remain dampened given that the eurozone remains one of its biggest export markets.
But the ADB said the impact was not expected to cause a recession in Asia because countries in the eastern part of the globe have flexibility to implement measures to boost growth.
“Further cause for guarded optimism is that developing Asia still has relatively ample policy space to cushion a major external shock. Therefore, not only is the magnitude of the shock smaller relative to the global crisis, but the region has monetary, fiscal and financial policy tools to mitigate the impact of another external shock,” the ADB said.
Compared with their Western counterparts, debt levels of Asian countries are much smaller. The ADB said this would give governments in Asia the flexibility to spend on stimulus programs.