The multilateral agency noted that though Asia`s growth is expected to "pick up this year after slowing in the last quarter of 2011", Asian policymakers face the challenging task of adjusting policies to support stable, non-inflationary growth.
"An escalation of the crisis with a disorderly, large scale, and aggressive trimming of balance sheets could have a serious impact on Asia," the International Monetary Fund said in its Asia-Pacific Regional Economic Outlook report.
Asia is projected to see an economic growth of six per cent this year, almost the same level as in 2011. IMF said emerging Asia would remain the fastest growing region in the world, led by China and India, expanding about 8.25 per cent and close to 7 per cent, respectively, this year.
Emphasising that economic rebalancing remains a policy priority for much of Asia, the IMF said the best way for the region to protect itself against external shocks is by strengthening domestic sources of growth. On the impact of European crisis on Asia, the report noted that a sharp fall in exports to advanced economies and a reversal of foreign capital flows would severely hit the region.