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TIANJIN, China (Reuters) - The downside risks to the global economy from Europe's debt crisis should not be understated and Asian export growth could be in particular jeopardy, Zhu Min, deputy managing director of the International Monetary Fund, said on Tuesday.
Zhu, speaking at a World Economic Forum meeting in the Chinese port city of Tianjin, said the crisis still had a long way to go and that the risk of a second European recession in three years would be bad news for global growth.
"We should not underestimate the negative impact from the European crisis to the whole world. This is very important," he told an audience of international business leaders gathered for an annual meeting in China.
Europe's debt crisis has festered for more than three years, and investors widely expect the 17-member euro zone economy to slide into recession in 2012 as a result of the failure to solve the crisis and engineer a recovery.
"The growth side (of Europe's crisis) has a profound impact on the global economy," Zhu said, adding that IMF models predicted as much as 1.5-2.0 percent being cut from economic activity in the U.S. and Japan and 1 percent from activity in China if there was a further deterioration in Europe.
The impact on Asian trade could be dramatic as Europe buys about a third of the region's valued added exports.
"When the growth in the euro area drops to zero, you will see export growth from this region drop to zero too. This is very important," Zhu said.
Falling demand from Europe has been a serious drag on Asian economic activity this year, compelling governments around the region to step up investment and other spending to stimulate domestic demand to compensate for the external decline.
China said last week that it had approved more than $150 billion-worth of infrastructure projects. That comes on top of the monetary and fiscal easing undertaken since last year.
But some economists fear it will be insufficient to stop growth falling below the official 7.5 percent target for 2012.
In a key note speech to the WEF, Premier Wen Jiabao said the government was giving greater prominence in policymaking to stabilizing the economy.
And he sounded confident that the growth target was achievable, despite some dispiriting economic data released in the past few days.
"China's economic development trend is good, economic growth still remains within the target range set at the beginning of the year, and the economy is stabilizing," Wen said.
If needed, he said, Beijing would tap a special stabilization fund - built from accumulated surpluses in previous years - if necessary to support growth.
"There is around 100 billion yuan left in the stabilization fund as of this year," Wen said, adding that Beijing was running a fiscal surplus of about 1 trillion yuan so far in 2012.
China's role as the anchor economy for the region is increasingly evident in the slowdown spreading around Asia, and analysts say many politicians in Asia are as anxious as investors that Beijing steps up its policy response.
Latest economic data for August gave ammunition to critics who say more Beijing-backed spending is needed to repair damage done to the domestic economy by firms cutting production, inventories and imports in the face of anemic global demand.
Exports generate 25 percent of gross domestic product in China and support an estimated 200 million jobs. The economy is on course for its weakest year of expansion since 1999.
Investors worry that six successive quarters of slowing Chinese growth risk sliding into a seventh in the third quarter of 2012 as China's factories run at their slowest rate of expansion since May 2009.
China's last officially declared stimulus package was the 4 trillion yuan ($635 billion) spending plan unveiled in 2008, when global trade ground to a halt and at least 20 million Chinese workers lost their jobs in a matter of months as financial turmoil swept around the world.
Job losses on that scale have so far been avoided, but it remains a danger for Beijing ahead of a transition of power at the top of the Communist Party that is supposed to take place against a backdrop of prosperity and social stability.
Some analysts see the relatively tight conditions in China's labor market as a sign of its ability to shoulder more of the burden of sustaining global economic activity.
But the IMF's Zhu warned against that view.
"China is having a big spill-over impact on the rest of the world. It is having an increasingly big impact on the world economy through investment, trade and manufacturing sector," he said. "But China alone cannot save the world economy."
Writing by Nick Edwards; Editing by Simon Cameron-Moore