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Top economics news: Japanese yen slumps; Russia eyes crypto – World Economic Forum

The World Bank has cut its global growth forecast by nearly a third to 2.9% for 2022, saying that Russia’s war on Ukraine has added to the damage caused by COVID-19 and that many countries face recession. Growth could fall to 2.1% this year and 1.5% in 2023, World Bank President David Malpass said.
The European Central Bank is expected to end eight years of negative interest rates as soon as July, as inflation threatens to run out of control, Bloomberg reports. Annual inflation in the eurozone hit 8.1% in May, with energy costs up 39.2%.
German inflation rose to 8.7% in May, its highest in nearly half a century on the back of soaring energy and food prices. And Switzerland’s consumer price index rose at its highest rate for 14 years for the same reason. Prices there rose by 2.9% compared with a year earlier, in a country noted for its historically low inflation, according to Reuters.
The United States is also dealing with “unacceptable levels of inflation”, according to Treasury Secretary Janet Yellen. She expects the Biden administration to increase its 4.7% inflation forecast for this year in its budget proposal.
US worker productivity slid at its fastest rate since 1947 in the first quarter, while growth accelerated in labour costs per unit of output. This indicates that strong wage gains are likely to continue and that inflation will remain high.
India has increased its key interest rate for the second time in as many months, putting it at 4.9%. And Nigeria’s central bank unexpectedly raised its benchmark interest rate for the first time in almost six years to curb accelerating inflation and boost capital inflows. The rate has risen by 150 basis points to 13%.
Poland has raised its main interest rate to 6%. This is its highest since 2008, as it fights inflation of 13.9% – a level unseen in nearly 25 years.
There was an unexpected plunge in Germany’s factory orders in April, as lockdowns in China pressured global supply chains. Demand fell by 2.7% from March – a third consecutive monthly drop – driven by a decline in foreign orders.
However, China’s service sector activity shrank less sharply in May, as Beijing relaxed COVID-19 restrictions in some cities. The official non-manufacturing Purchasing Managers’ Index – which covers things such as shopping, dining out and transportation – rose to 47.8 in May, from 41.9 in April. A reading above 50 indicates expansion while below 50 indicates contraction.
The United States is looking to reduce China’s economic influence over Latin America by signing a new partnership with the region. Negotiations could start in early autumn on the “Americas Partnership for Economic Prosperity”, which would seek to build on existing trade deals, Reuters reports.
The UK economy will stagnate next year, with 0% growth, the Organisation for Economic Co-operation and Development estimates. This will make it the slowest-growing economy in the G7 – it is currently the second-fastest growing.
South Africa’s economic growth quickened to 1.9% in the first quarter as the country relaxed almost all remaining coronavirus restrictions. The economy is now about the same size as before the pandemic, but remains stuck in its longest downward cycle since the Second World War, having not grown by more than 3% annually since 2012.
The Japanese yen has fallen to a 20-year low against the US dollar. The drop is a result of a widening gap between bond yields in Japan and the US – the pay-out to investors taking on government debt – and is heaping pressure on a government facing a backlash over rising prices.
The yen’s plunge is escalating Japan’s costs for importing fuel, which is mostly paid for in US dollars. This has led to the country stepping up appeals to citizens and companies to conserve electricity, including by watching an hour less TV a day and switching off the heater functions on toilet seats. Japan faces an energy supply squeeze this summer – it is particularly exposed to tight global markets because it relies so heavily on fuel imports.
The government is desperate to avoid a cost-of-living crisis ahead of a national election in the coming months. But it is at odds with the the Bank of Japan, which sees a weaker currency as a way to boost the overseas profits of Japan’s biggest companies. A weaker yen could also help restore Japan’s once-thriving tourism industry as the country relaxes COVID-19 restrictions on foreign visitors.
“The Bank of Japan is now the only central bank among developed nations which isn’t tightening monetary policy … leaving the yen as the only loser,” Takuya Kanda, General Manager at Research Institute in Tokyo, told Bloomberg.

Russia will legalize cryptocurrencies as a means of payment sooner or later, Industry and Trade Minister Denis Manturov said on 18 May, suggesting that the government and central bank may be moving closer to settling their differences over the issue. The finance ministry submitted legislative proposals on the matter on 24 February, shortly before Russia began its war on Ukraine. The proposals clashed with the central bank’s demand for a blanket ban on such payments.
“The question is, when this happens, how it will be regulated, now that the central bank and government are actively working on it,” Manturov said at a forum. “But everyone tends to understand that … sooner or later this will be implemented, in some format or other.”
Blockchain is a technology that enables the decentralized and secure storage and transfer of information and value. The most well-known use case is cryptocurrencies, such as bitcoin, which allows for the electronic transfer of funds without banking networks. It can be a powerful tool for tracking goods, data, documentation and transactions – and could be relevant to numerous industries.
Blockchain entails significant trade-offs with respect to efficiency and scalability, as well as numerous risks increasingly coming to the attention of policy-makers. These include the use of cryptocurrency in ransomware attacks, fraud and illicit activity, and the energy consumption and environmental footprint of some blockchain networks. Consumer protection is also an important and often overlooked issue with cryptocurrency. So-called “stablecoins” and decentralized applications operating on blockchain technology pose risks to end-users of lost funds and to broader financial stability.
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A senior central bank official said two weeks after Manturov’s comments that it is open to allowing the use of cryptocurrency for international payments. Central bank officials have long been against crypto because of risks to financial stability.
Russia’s government has only recently come round to supporting the use of cryptocurrencies, having argued for years that they could be used in money laundering or to finance terrorism. The change in stance comes after the country’s biggest banks were removed from the SWIFT international payments system in response to the country’s war on Ukraine.
Central banks are not holding the US dollar in their reserves to the extent that they once did. The IMF looks at the rise of non-traditional reserve currencies.
Targeted income support is the best way to reduce the impact of high energy prices, according to this VoxEU column.
How has the increasing use of computers affected salaries for office jobs? A new NBER working paper takes a look.

Ian Shine, Senior Writer, Formative Content
The views expressed in this article are those of the author alone and not the World Economic Forum.
Latin American and the Caribbean (LAC) countries’ experience of widening inequalities should look to digital transformation in transport to boost recovery.
Top economy stories: Japanese yen hits two-decade low; Russia eyes legalization of crypto payments; World Bank cuts global growth forecast by a third.
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