IMF takes its gloom to China

Here’s the detail of the IMF’s overnight call that China would be in the direct line of fire in the event of a European credit event:

Should such a tail risk of financial volatility emanating from Europe be realized, it would drag China’s growth lower. The channels of contagion would be felt mainly through trade, with knock-on effects to domestic demand. In the downside scenario outlined in the WEO Update—which would see global growth falling by 1¾ percentage points relative to the baseline—China’s growth would fall by around 4 percentage points (Box 1). The risks to China from Europe are, therefore, both large and tangible.

From 8.25% to 4.25% that is:

But fear not, says IMF, because China can spend.