A big risk to Asian economies from a eurozone meltdown could come in the form of deleveraging or repatriation of funds as experienced during the US financial crisis. Quoting data from Bank for International Settlements (BIS), a panel of economists from Nomura Research, in a media call, said that total claims by European banks on Asia ex-Japan economies stood at $1.4 trillion as of June 2011. To a question posed by Business Line , Mr Rob Subbaraman, Chief Asia Economist, said that claims by Eurozone banks on Asia ex-Japan were over twice similar claims by the US banks.
According to BIS data as of June 2011, India is the fifth largest Asian borrower from Eurozone banks. The Euro region lent India $61.4 billion or 3.4 per cent of India's GDP as of June 2011.
Could that pose a near-term risk of capital flight from India? While there was no immediate data available to confirm this, according to Mr Tomo Kinoshita, Deputy Head of Economics, Asia ex-Japan at Nomura - of international banks' total claims due from India, 60 per cent or $128.5 billion had a maturity of up to one year.
This seen together with India's foreign exchange reserves of $311.5 billion as of September, does place India in the risk radar. China, Singapore, Hong Kong and South Korea are other top Asian borrowers from European banks.
Impact on Asian GDP growth
Countries such as Hong Kong, Singapore, Korea, Taiwan and Malaysia, will slip to negative GDP growth in 2012 if the Eurozone sees a deceleration of 4 per cent (worst-case scenario) instead of the 1 per cent dip forecast for 2012.
Hong Kong, Singapore, Malaysia, Taiwan, Thailand and Korea, are some of the high export-oriented Asian economies with exports accounting for anywhere between 30-97 per cent of their GDP in 2010. With Europe overtaking the US as an important destination for Asian goods, a European slowdown is set to hurt these economies more than the others said the Nomura economists.
According to Nomura's 2012 economic outlook report, countries such as China, India and Indonesia will still grow at a decent pace, as a result of their internal demand and less dependency on exports.