The Asian Development Bank said the Philippines and other developing countries in Asia have the capacity to remain stable in the event that the prolonged crisis in the eurozone should evolve into another global economic meltdown.
In one of its latest papers, 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,” the ADB said in the paper titled “Economic Impact of Eurozone Sovereign Debt Crisis on Developing Asia.”
Several eurozone economies continue to struggle with huge government debts and worrisome conditions of their financial sectors. The economic problems have been blamed for the high unemployment rates that, in turn, led to street protests.
The ADB said that with the current scenario in the eurozone, the possibility of the crisis transforming into a bigger problem for the global economy could not be discounted.
It said, however, that ongoing efforts to address the eurozone crisis, including the European Central Bank’s pumping of liquidity, still gave a good chance that the current crisis would head toward a slow recovery rather than a deterioration.
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.
In the case of the Philippines, the national government’s debt as a proportion of the country’s gross domestic product has fallen over the years from more than 70 percent in 2004 to just about 50 percent last year. The debt-to-GDP ratio is seen to further go down this year.
The ADB said central banks in Asia also have room to adjust policies to become more accommodative of economic growth.