Krugman: World Economy Stabilizing ; Gulf Arab States Should Drop Dollar Peg

Nobel Prize-winning economist Paul Krugman told a seminar in the UAE Monday, he will not be surprised to see world economy stabilise and start to grow few months from now.

From Reuters: The world economy has avoided “utter catastrophe” and industrialised countries could register growth this year, Krugman told a seminar [in Abu Dhabi, UAE, the second-largest Arab economy].

“I will not be surprised to see world trade stabilise, world industrial production stabilise and start to grow two months from now.”

“I would not be surprised to see flat to positive GDP growth in the United States, and maybe even in Europe, in the second half of the year.”

“In some sense we may be past the worst but there is a big difference between stabilising and actually making up the lost ground,” he said.

“We have averted utter catastrophe, but how do we get real recovery?

“We can’t all export our way to recovery. There’s no other planet to trade with”…Krugman said.

Krugman also suggested Gulf Arab states would be better off if they dropped their currency pegs to the greenback.

From Gulf Times: “I think it’s not (wise), just on general principles,” Krugman said of the region’s use of the dollar peg.

“You have a region that does as much trade with the euro zone as it does with the US … Having a dollar peg exposes yourself to a lot of gratuitous fluctuation,” he told reporters on the sidelines [of the Abu Dhabi seminar].

“If you feel you must have a currency peg then the economics suggest to a basket that more or less reflects trade weights,” Krugman said, adding inflationary pressure would come round again should the dollar fall to previous lows.

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