China growth rate could be halved if Europe worsens

China’s economic expansion would be cut almost in half if Europe’s debt crisis worsens, a scenario that would warrant “significant” fiscal stimulus from the nation’s government, the International Monetary Fund (IMF) said.

Based on the IMF’s “downside” forecast for the global economy, China’s growth could drop by as much as four percentage points from the fund’s current projection, which is for 8.2 per cent this year, the organisation said in a report released on Monday by its China office in Beijing.

The outlook expands on the IMF’s warning last month that the world could plunge into another recession if Europe’s woes deepen. Premier Wen Jiabao reiterated last week his government will “fine-tune” policies to support growth amid the region’s debt crisis and the cooling domestic property market.

“China’s growth rate would drop abruptly if the euro area experiences a sharp recession,” the Washington-based IMF said. “However, a track record of fiscal discipline has given China ample room to respond to such an external shock.”

The government should cushion the impact of a deeper slowdown with measures including tax cuts that amount to about three per cent of gross domestic product, it said.

Asian stocks climbed after data February 3 showed employers in the US added 243,000 jobs in January, exceeding the most optimistic estimates in a Bloomberg News survey.

The MSCI Asia Pacific Index rose 0.5 per cent as of 2.28 pm in Tokyo.

China’s economy is unlikely to experience a “hard landing” and the nation has room to boost fiscal spending, Anoop Singh, director of the IMF’s Asia-Pacific department, said last week in Washington. China should strengthen domestic consumption, he said.