ISLAMABAD, Feb 23: The Asian Development Bank, in a new analysis, says that the euro crisis will slow down the economic growth of Asian countries but would not derail the robust momentum of the region’s recovery since the global crisis of 2008-2009.

The analysis, ‘Economic Impact of Eurozone Sovereign Debt Crisis on Developing Asia’, says that the impact on developing Asia will fall primarily on trade but the region should be able to weather a euro slowdown.

However, a significant effect on the region’s financial systems, especially its banking sector, as overall, the magnitude of the shock from the euro crisis will be significantly smaller than the shock from the global crisis. The European Union will remain an important economic partner for the region in the foreseeable future.

The euro crisis is still far from fundamentally resolved and its evolution will clearly impinge heavily on its future impact. The most practical and immediate implication for policymakers is that they should continue to keep a close eye on eurozone developments and their ramifications for their economies, it says.

The main impact of the 2008-2009 global crises fell on Asian exports and growth, and this will be the case for the euro crisis. The adverse impact of the euro crisis on the EU’s real economy will crimp its appetite for imports from Asia. The EU is now widely expected to contract this year, and this will harm Asian exports and growth, feared the analysis.

The EU has now become a larger export market for Asia than the US. However, the more fundamental trend is that both are declining in relative significance. In and of itself, this suggests that a recession in the US will have a smaller impact on Asian exports and growth than it did in the past, ADB analysis states.

In the light of post-crisis weakening of its growth, the EU’s relative contribution to Asia’s export growth has shrunk since the global crisis. Prior to the crisis, the EU accounted for 16.5 per cent of the region’s export growth but after the crisis this figure dropped by 4 percentage points to 12.4 per cent.

According to the analysis, the dominant channel of transmission of the euro crisis to Asia will be the trade channel but there will be effects on Asia’s financial sector as well. During the global crisis of 2008-2009, Asia’s financial systems were largely immune from the credit crunch which engulfed the EU and the US except for sporadic bouts of turbulence in a few countries. But by and large, credit continued to flow uninterrupted from the financial system to the real economy and Asia was largely spared the financial paralysis which almost brought financial intermediation to a standstill in the West.

Overall, eurozone has been an important source of foreign bank loans for developing Asia. According to data from the Bank for International Settlements, in September 2011 Asia’s borrowings from eurozone banks amounted to around $440 billion, equivalent to 14 per cent of the region’s total foreign bank financing.

The 2008–2009 global financial and economic crisis gave a vivid reminder of Asia’s continued vulnerability to the G3 - the United States (US), the European Union (EU), and Japan - business cycle. Despite the negligible exposure of the region’s banking system to sub-prime assets, the crisis hit the region hard through the trade channel.

The impact of the euro crisis on Asia’s GDP growth will differ from country to country but the overall impact is likely to be significant but manageable. This is consistent with the overall picture of a declining role of EU in Asia’s exports and export growth.

In conclusion, the analysis says that developing Asia can and should make bigger contributions toward fostering global financial stability. Global financial turmoil is a global public bad and, by the same token, global financial stability is a global public good. The post-global crisis world is likely to be characterised by moderation due to slower growth in the advanced economies.