Paul Krugman Says Peru in Trouble if China Enters a Crisis

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.

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  1. Jason W. Smith, Ph.D. says:

    Paul Krugman and I got into political economy via the same inspiration (Isaac Asimov’s Foundation Trilogy). But our agreement ends there as he is a leading theoretician of the bankrupt neocon neoliberal neoimperialist policies. There is no chance that China will lower its copper imports for example as the PBOC made clear over the last few months. Note just one critical estimate from Freeport McMann:
    SINGAPORE, March 19 (Reuters) – China’s copper consumption will grow for “more than a decade” as demand from the world’s top user remains robust despite fears of an economic slowdown, a Freeport-McMoRan Copper and Gold Inc executive said on Wednesday.
    Worries over slower growth in China, which accounts for 40 percent of global copper consumption, helped send prices of the industrial metal to a 44-month low last week, down 12 percent this year.
    Still, the long-term outlook remained solid, said Freeport’s Javier Targhetta, senior vice president for marketing and sales.
    “We are seeing still robust consumption in China. Of course there can be hiccups here and there,” Targhetta told Reuters on the sidelines of an industry conference. “I think Chinese consumption of copper will keep growing for more than a decade.”
    He expected China’s import volumes to remain brisk even if its gross domestic product expansion slows to 3-4 percent, while a recovery in the U.S. and European economies
    “Copper is increasingly needed both in mature and emerging economies,” he said.
    Three-month copper on the London Metal Exchange was trading at $6,470 a tonne on Wednesday, regaining some ground after hitting $6,376.25 last week, its lowest since July 2010.

    • Martin Halpern says:

      Those that think that countries that have economies highly dependent on exports of metals are dreaming if they think that continual growth will continue at the same rate as the past decade.

  2. “This could break Peru’s streak of good luck,”

    “As a major global mineral producer, Peru’s good economic luck has been due to….”

    ?Is this the prevailing attitude as regards the future here in Peru,,,, ! LUCK !

    The Empire State Building was completed in 1933….. is the reason it stands due to ‘good luck’

    When someone other than myself in Peru realizes that strategy and planning create the future, well, until then.. Peru is Doomed.

    When the Doctor or your Broker wishes you “GOOD LUCK”,,, your Really really really in trouble…..

  3. Yawn…
    So what if the economy slows a bit Paul. Even something that is on an uptrend takes a break every so often. And my money is on precious metals, already making a recovery, actually heating up this year. So me thinks Paul is likely wrong.

    Back to my siesta..

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