Nobel winner Krugman says world may escape collapse

STOCKHOLM (Reuters) - The U.S. economist who won the 2008 Nobel prize for economics said on Monday the world economy could suffer a prolonged recession but might escape collapse.

"This is terrifying," Paul Krugman, speaking after learning of his award, said of market chaos over recent weeks. But he added: "I'm slightly less terrified today than I was on Friday."

Policymakers around the world agreed drastic steps over the weekend to rescue banks and free up the flow of lending in the hope of staving off a global recession.

Krugman, a strong critic of the Bush administration, praised the efforts made by world leaders to staunch the crisis.

"We're going to have a recession and perhaps a prolonged one but perhaps not a collapse," he said.

The committee awarded Krugman the prize for work that helps explain why some countries dominate international trade.

A prominent economist who writes columns for the New York Times, Krugman has long featured among the favorites to win a Nobel. He is a professor of economics and international affairs at Princeton University in the United States.

The Royal Swedish Academy of Sciences said the prestigious 10 million crown ($1.4 million) award recognized Krugman's formulation of a new theory that addresses what drives worldwide urbanization.

"He has thereby integrated the previously disparate research fields of international trade and economic geography," the committee said.

(Editing by Ralph Boulton)