Peru’s economy could face a major setback if the China enters into an economic slowdown or crisis, a Nobel Prize winning economist said.
During a visit to Peru, Princeton University economist Paul Krugman, who won the Nobel Prize in Economics in 2008, said that there is a growing chance China will face an economic crisis in the short term.
For commodity-producing countries like Peru, this would be bad news. “For an exporter of raw materials like Peru, it is much more exposed than other countries. The United States, or even Mexico, can face problems in China, unlike Peru,” he said in comments reported by daily El Comercio.
“This could break Peru’s streak of good luck,” he added.
As a major global mineral producer, Peru’s good economic luck has been due in large part to a surge in prices for metals like copper and gold, coupled with solid financial and monetary policies.
Peru’s economy began to slow last year, as exports tumbled on lower metal prices. The GDP expanded 5 percent, its slowest rate since 2009 and down from 6.3 percent in 2012. The country also posted its first trade deficit in years.
Krugman’s dark outlook for Peru in the case of a problems in China was shared by Peru’s central bank governor, Julio Velarde.
Velarde said that he expects Peru’s economy will expand by about 6 percent this year, however he added that this will depend largely on China.
“One of the most important risks is probably China, that could change our projections a lot,” Velarde said in comments reported by financial daily Gestion.
“With the deceleration of our main trading partner… the task is even more complicated. The risk has certainly increased,” said Velarde.