IMF sees China growth halved as crisis spreads

Japan reported its sharpest crash in business sentiment in three decades and China said its industrial output grew at the slowest pace since 1999, adding to evidence that a global downturn would last through next year.

Asian markets rallied despite the gloomy data, buoyed by expectations that the White House would step in to prevent the collapse of the "Big Three" U.S. automakers. But bleak forecasts from European carmakers and the fallout of an alleged Wall Street fraud held back European and U.S. stocks.

International Monetary Fund Managing Director Dominique Strauss-Kahn told a conference that growth in China, the world's fourth biggest economy and accustomed to double-digit growth rates, could fall to five percent next year from 9.7 this year.

"We started with China at 11 percent growth, then 8, then 7, then China will probably grow at 5 or 6 percent," he told a conference in Madrid.

"The possibility of a global recession is real, we realise something must be done."

He said the world needed stimulus measures of around 2 percent of its GDP -- $1.2 trillion -- to reduce the risk of a damaging global recession, and that the global financial sector must share wealth around more broadly.

"If we are not able to do that then social unrest may happen in many places, including advanced economies," he said.

"The good news, with some exceptions, maybe a lot of exceptions -- we can see the beginning of the recovery end of 2009, beginning of 2010, but there are a lot of downside risks."

China in particular fears unrest if growth falls below the 8 percent it says it needs in order to create enough jobs for the millions of people moving to cities from the countryside.

Its annual industrial output growth slowed to 5.4 percent in November -- the weakest figure in at least nine years for a non-holiday month and down from 8.2 percent in October.

"Next year's employment market will be very serious, affected by the international financial crisis," Xinhua quoted Chinese President Hu Jintao as saying.

The Bank of Japan's tankan survey gauging manufacturers' sentiment in the world's second largest economy number fell to minus 24, slightly worse than expected, from minus 3 the previous quarter. It was the biggest fall since the oil crises of the 1970s and the bleakest outlook since 2002, when Japan was recovering from a slump after a banking crisis.

The December survey pointed to more economic gloom ahead.

Bank of Japan Governor Masaaki Shirakawa told the Financial Times the economy might shrink in the year to March 2010, where the bank previously expected a slim recovery.

Last week's collapse of auto bailout talks in the U.S. Senate sent world markets reeling.

Investors fear a failure of any of the automakers would exacerbate a U.S. recession and drag other companies under.

President George W. Bush told reporters aboard Air Force One on Monday that while some funds earmarked to shore up the U.S. finance industry could be diverted to automakers, no announcement was imminent. Over the weekend carmakers elsewhere produced dire warnings about the state of their sector.

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