War Knocks Global Economy With Dual Shock to Growth and Prices

9yn]]2omiknfg7b2hs1l(4cv_media_dl_1.png S&P Global

Article content

(Bloomberg) — The world economy’s first signs of a synchronized shock emerged in business surveys revealing how the Iran war’s fallout is crippling growth momentum and stoking prices.

Article content

Multiple purchasing manager indexes compiled by S&P Global for March showed marked declines. Among the releases on Tuesday, the euro zone’s composite measure dropped more than economists predicted, Australia’s equivalent gauge slumped to indicate a sudden contraction, and Indian factory activity slowed to the weakest since 2021.

Article content

Article content

Article content

Several price readings surged meanwhile, with input cost inflation in Germany, Europe’s biggest economy, quickening to the fastest pace in more than three years. A similar gauge for UK manufacturing jumped the most since 1992. 

Article content

Article content

The provisional results were gathered in the second half of March, capturing the mounting gloom among global businesses at the persistence of the Iran war and its mushrooming fallout. 

Article content

Collectively, the indexes offer an initial illustration of the reverberations on prosperity of a conflict that has taken an immediate and crushing toll on energy supplies crucial to the functioning of some of the world’s biggest economies. 

Article content

Alarm at the consequences has already gripped policymakers, with European Central Bank chief Christine Lagarde declaring last week that the hostilities sparked by US President Donald Trump’s attack on Iran have stoked “upside risks for inflation and downside risks for economic growth.”

Article content

Monetary officials both in Frankfurt and London have pivoted toward hawkish vigilance, with a euro-zone hike in interest rates possible as soon as next month. Peers in Japan are priming another move as soon April and those in Australia already delivered a second consecutive increase.

Article content

Article content

“Before the Iran war erupted, our global growth tracker suggested the world economy was gathering momentum,” said Jamie Rush, director of global economics at Bloomberg Economics. “The PMI figures emerging from advanced economies suggest that nascent recovery is in danger of being choked off by a combination of higher oil costs, tighter financial conditions and faltering sentiment.”

Article content

The results on Tuesday don’t yet include gauges from the US. Of those published so far globally, every composite index of activity that combines both manufacturing and services shows notable declines. 

Article content

The list in chronological order encompasses Australia, Japan, India, France, Germany, the overall euro zone, and finally the UK too.

Article content

Euro-area manufacturing activity unexpectedly improved, though S&P Global’s analysis cautioned that frontloading of stock-building by clients wary of supply disruptions may account for some of that. 

Article content

Combined with a near-stalling of services activity in the region, and a 10-month low for the composite measure, the overall picture was bleak, not least given a notable uptick in price indicators.