Economic growth in China could drop by half this year in the event of a sharp recession in Europe, the International Monetary Fund predicted yesterday in a report that underscored the importance of global trade to the world’s second-largest economy.

“The risks to China from Europe are both large and tangible,” and “China would be highly exposed through trade linkages,” said the report, which was published by the IMF’s representative office in China.

The IMF’s forecast for China’s annual growth in 2012 has been lowered to 8.2 per cent from a previous forecast of 9 per cent but China’s export-driven economy would be badly hit if Europe’s performance is worse than expected. “In the absence of a domestic policy response, China’s growth could decline by as much as 4 percentage points relative to the baseline projections [of 8.2 per cent] leading to broad-based consumer and asset price deflation,” the report said.