World Bank Warns of Stagflation Risk, Cuts Global Growth Forecast

WASHINGTON—The World Bank sharply lowered its growth forecast for the global economy for this year, warning of several years of high inflation and tepid growth reminiscent of the stagflation of the 1970s.

Citing the damage from the war in Ukraine and the Covid-19 pandemic, the bank said global growth is expected to slump to 2.9% in 2022 from 5.7% in 2021, significantly lower than its January forecast for 4.1% growth. Furthermore, growth is expected to hover around the reduced pace over 2023 and 2024 as the war disrupts human activity, investment and trade while governments withdraw fiscal and monetary support.

“Several years of above-average inflation and below-average growth now seem likely,” David Malpass, president of World Bank Group, told reporters. “The risk from stagflation is considerable.”

Mr. Malpass said recession will be hard to avoid for many countries as growth is hammered by the war in Ukraine, pandemic lockdowns in China and supply-chain disruptions. He urged policy makers to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality, he said.

In its latest Global Economic Prospects report, the World Bank conducted a detailed assessment of how current global economic conditions compare with the high inflation and weak growth—so-called stagflation—of the 1970s, when oil shocks, high federal spending and loose monetary policy caused inflation to soar.

The bank said that recovery from the stagflation of the 1970s required steep increases in interest rates in major advanced economies, which in turn triggered a string of financial crises in emerging markets and developing economies.

Economists and policy makers are increasingly concerned about the risk of stagflation in the global economy, which could damage living standards for people around the world, particularly in lower and middle-income nations.

As a result of the damage from the pandemic and the war, the World Bank said the level of per capita income in developing economies this year will be nearly 5% below its prepandemic trend.

“Higher food and energy prices are having stagflationary effects, namely, depressing output and spending and raising inflation all around the world,” Treasury Secretary Janet Yellen said in May, noting that the economic outlook globally is challenging and uncertain.

Ms. Yellen appeared before lawmakers on Tuesday as she and the Biden administration face scrutiny over how they have addressed high inflation.

Alibaba Group co-founder Jack Ma said competition will make the company stronger and the e-commerce giant needs to trust in the power of market forces and innovation, according to an internal memo to commemorate the company’s 25th anniversary.

“Many of Alibaba’s business face challenges and the possibility of being surpassed, but that’s to be expected as no single company can stay at the top forever in any industry,” Ma said in a letter sent to employees late Tuesday, seen by The Wall Street Journal.

Once a darling of Wall Street and the dominant player in China’s e-commerce industry, the tech giant’s growth has slowed amid a weakening Chinese economy and subdued consumer sentiment. Intensifying competition from homegrown upstarts such as PDD Holdings ’ Pinduoduo e-commerce platform and ByteDance’s short-video app Douyin has also pressured Alibaba’s growth momentum.

“Only with competition can we become stronger and allow the industry to remain healthy,” Ma said.

The letter came after Alibaba recently completed a three-year regulatory process in China.

Chinese regulators said in late August that they have completed their monitoring and evaluation of Alibaba after the company was penalized over monopolistic practices in 2021. Over the past three years, the company has been required to submit self-evaluation compliance reports to market regulators.

Ma reiterated Alibaba’s ambition of being a company that can last 102 years. He urged Alibaba’s employees to not flounder in the midst of challenges and competition.

“The reason we’re Alibaba is because we have idealistic beliefs, we trust the future, believe in the market. We believe that only a company that can create real value for society can keep operating for 102 years,” he said.

Ma himself has kept a low profile since late 2020 when financial affiliate Ant Group called off initial public offerings in Hong Kong and Shanghai that had been on track to raise more than $34 billion.

In a separate internal letter in April, he praised Alibaba’s leadership and its restructuring efforts after the company split the group into six independently run companies.

Alibaba recently completed the conversion of its Hong Kong secondary listing into a primary listing, and on Tuesday was added to a scheme allowing investors in mainland China to trade Hong Kong-listed shares.

Alibaba shares fell 1.2% to 80.60 Hong Kong dollars, or equivalent of US$10.34, by midday Wednesday, after rising 4.2% on Tuesday following the Stock Connect inclusion. The company’s shares are up 6.9% so far this year.

World Bank Warns of Stagflation Risk, Cuts Global Growth Forecast

Toll from Ukraine war and Covid-19 pandemic is likely to lead to years of slow growth and high inflation, bank says.

“Only with competition can we become stronger and allow the industry to remain healthy,” Ma said