The impact of the energy shock from the war in Iran is increasingly felt in the global economy as factories struggle with higher production costs and even services sectors weaken, major surveys showed recently. Much of the global economy withstands the worst disruption to energy supplies in modern times, but the knock-on effects of the near-two-month conflict are pushing up inflation and leading to downgrades to economic growth.
This comes a week after a series of downbeat business and consumer morale readings and cautious outlooks from top listed companies. The closely watched set of S&P Global surveys of purchasing managers released recently showed worse to come. It pointed to the 21 countries of the euro zone as among the hardest hit, with the preliminary reading of its headline index for the region falling from 50.7 in March to 48.6 in April – a sub-50 tally that indicates a shrinkage in activity.
The input price index surged to 76.9 from 68.9, showing how eurozone factories are facing a jump in their production costs. The index covering the bloc’s dominant services industry, meanwhile, sank to 47.4 from 50.2, well below a Reuters poll estimate of 49.8.
“The euro zone is facing deepening economic woes from the war in the Middle East. Increasingly widespread supply shortages, meanwhile, threaten to dampen growth further while adding more upward pressure to prices in the coming weeks,” said Chris Williamson, chief business economist at S&P Global.
On the other side of the Atlantic, however, S&P’s gauge of US activity rebounded but was also characterised by the same kinds of panic buying in the face of war-caused supply shortages and price pressures that held back EU activity. Delivery times and output prices hit their highest levels since the post-COVID supply chain snarls and inflation wave peaked around four years ago.
The manufacturing PMI increased to a 47-month high of 54.0 from 52.3 in March, beating economists’ expectations for a reading of 52.5. The measure of new orders received by factories also rose to 54.8 from 52.3 in March. The services PMI also recovered, rising to a reading of 51.3 from 49.8 last month, the first contraction since January 2023.