The Philippines and the rest of Asia?s emerging economies should brace for a deeper and prolonged global recession that will likely add pressure on the region?s financial systems and dampen growth in 2009, a report of the Asian Development Bank said.

The December issue of the ADB?s Asia Economic Monitor said the Philippines, after posting a 31-year-high growth in gross domestic product of 7.2 percent last year, would likely grow 4.5 percent this year and 3.5 percent next year.

For the 10 countries in the Association of Southeast Asian Nations (ASEAN), it forecast growth averaging 3.5 percent.

It said growth in emerging East Asia?comprising the ASEAN countries, China, Hong Kong, Taipei, and South?would slow down to 5.7 percent in 2009 from an estimated 6.9 percent this year.

With the global economy facing a major downturn, the region?s economic resilience will be tested by weakening exports and a sharp slowdown in capital flows, the report said.

Jong-Wha Lee, head of the ADB office of regional economic integration, said: ?2009 is likely to be a difficult year for developing Asia but it will be manageable if countries respond decisively and collectively.?

?Swift action by policymakers to stem both the threat to the financial systems and the real economy will allow most of the region?s economies to sustain a healthy if slower expansion,? Lee added.

Maintaining the growth momentum in domestic demand is a key to keeping the regional economy in good shape despite a weak external environment, the report said.

China, the region?s growth engine, is expected to post growth of 8.2 percent in 2009, compared with 9.5 percent in 2008, the ADB report said.

While the region?s economies and financial systems are fundamentally sound, the report noted with concern that the global credit crunch was now spilling over into domestic banking systems, squeezing funding resources for corporate investment, and could boil over in some key regional economies if left unaddressed.

If banks in the region become more risk averse, the report warned that monetary policies may have less traction than in the past and governments will have to develop more active fiscal response to shore up domestic demand.

The ADB report urged policymakers in the region to adopt the following measures:

? Step up monitoring of local financial markets and have clear policies in dealing with stressed institutions.

? Provide adequate provisions of foreign and domestic liquidity.

? Consider a range of policies to contain the spillover effects of the worsening financial conditions and risks arising from weaker growth in regional banking systems.

? Improve regulation and oversight of financial systems.

[Read World Bank report (Download full copy of report here)]

With editing by INQUIRER.net