CDT Money: Trade Contraction Fuels Concerns

With China continuing to weigh a possible financial lifeline to Europe, the week’s economic news began with a warning from the IMF that prolonged trouble in the eurozone could halve China’s GDP growth in 2012. The new “downside” forecast released by the organization’s Beijing office on Monday cautioned that “financial volatility emanating from Europe” could pull down growth by as much as 4 percentage points from the current projection of 8.25 percent (which it also revised downward from 9 percent), but stopped short of predicting a “hard landing” due to China’s track record of fiscal discipline. From the IMF report:
The weak external outlook underscores the importance of accelerating the transformation of China’s economy to reduce its vulnerability to the vagaries of global demand. China has taken a number of encouraging steps, including appreciating the renminbi, making substantial investments in the social safety net, expanding pension and health care coverage, raising the minimum wage, and beginning to raise the cost of inputs to production (particularly energy). Greater efforts are now needed to raise household income and shift the growth structure from exports and investment toward consumption.
Other news throughout the week did little to stir optimism or counter the IMF’s downside view. Domestically, the Ministry of Commerce announced that sales during the Lunar New Year holiday – typically one of the busiest shopping seasons of the year - grew at the slowest pace since 2009. Even luxury brands, which have poured into China to meet booming demand, reported disappointing numbers and a tentative sentiment among browsing customers who just last year “were grabbing everything.” January auto sales hit the brakes as well, tumbling more than 25% year-on-year in the sector’s biggest drop since 2005.
Friday’s January trade figures only reinforced hints of sputtering domestic demand. Exports fell for the first

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