Paul Krugman says Brazil's economic crisis is 'manageable'

Monday, September 14, 2015

Columnist for The New York Times and winner of the Nobel Prize in Economic Sciences Paul Krugman told Brazilian business magazine Exame that the country's current crisis is "manageable" and that it does not compare to what has happened in Europe.

"I have no doubt that the situation is difficult. However, I think to describe it as a perfect storm is very strong," Krugman said. "Brazil is not vulnerable in the same way it has been in the past. The Brazilian situation also does not compare to that of European countries in recent years. Of course it does not help to have a political crisis in the middle of it all.

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It would be foolish to deny the gravity of the situation. But the country's debt is not critical and the private sector does not seem so exposed to the devaluation of the real. The Brazilian crisis is manageable."

Krugman also does not expect a repeat of the 2008 global crisis anytime soon. "Although we are seeing many countries and regions in difficulty, the risk of a new global crisis is relatively low. In terms of severity, the current situation is not comparable to what we had in 2008, when everything dropped. It also does not seem to be as bad as what we experienced in 2011 and 2012, when it seemed like the European crisis would get out of control," he said.

Brazil's political and economic crisis worsened when Standard & Poor's downgraded the country's rating to junk last week. Since then, the country's central bank has decided to intervene in the currency market in order to prevent another surge in the dollar against the real. The central bank's Focus survey, released today, also showed a drop in expectations of GDP growth for 2016.