FRANKFURT, Jan 24 (Reuters) - An economic crisis in China would knock some 1.5% off German economic growth and likely hurt its banks but an outright decoupling from the world's second-largest economy would be much worse, the Bundesbank said on Wednesday. According to its simulations, real German GDP would be 0.7% lower in the first year of the crisis and just under 1% in the second year as a result of lower exports to China, which is Germany's fourth-largest market, and weaker global demand.

China is struggling with distress in the housing market, local government debt and weakening global demand, adding to fractious trade and geopolitical relations with the West. ($1 = 0.9180 euros) (Reporting By Francesco Canepa; Editing by Sharon Singleton)