Europe's debt crisis could disrupt global trade, hurting demand for Asian exports and sending hot money into the region if policymakers fail to act swiftly and appropriately, a top IMF official said on Wednesday.
Although Asia has limited financial links to euro zone economies, its stronger growth prospects could attract more capital flows to the region and lead to asset bubbles, said International Monetary Fund Deputy Managing Director Naoyuki Shinohara.
The key will be for policymakers to keep an eye on the bigger picture and be ready to act swiftly as developments unfold, Shinohara said in a lecture to financial professionals in Singapore.
With Asia's economic muscle growing, the policy choices made in this region will have an important impact on the global economy, he said.
Shinohara, however, also said the economic situation in Hungary, the latest European country to run into financial difficulties, was not as serious as portrayed in some media reports.
The situation is much calmer, there's not much to worry about at this moment, he told reporters.
Hungary's government announced an action plan on Tuesday designed to calm frayed investor nerves after some officials spooked markets last week by suggesting Hungary could face a Greek-style debt scenario.
Most advanced economies are experiencing a subdued recovery. The United States is off to a better start than the debt-laden euro zone, while Japan has also benefitted from a strong rebound in trade, he added.
Shinohara said China's economic development was progressing along a sustainable path despite some inflationary pressures, and urged China to allow greater flexibility in its currency.
(Reporting by Nopporn Wong-Anan; Editing by Kevin Lim and Jeremy Laurence)