The world economy’s first signs of a synchronised shock emerged in business surveys revealing how the Iran war’s fallout is crippling growth momentum and stoking prices.
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.
US business activity also slowed to an 11-month low in March as the war in West Asia raised prices for energy products and other inputs. The survey also indicated a deterioration in sentiment that contributed to the first decline in private-sector employment in just over a year.
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.
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.
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.
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”.
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 as April and those in Australia already delivered a second consecutive increase.
“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.”
Outside the G7, India — which sources roughly 90 per cent of its crude and nearly half its natural gas from abroad — saw its private-sector growth hit a three-year low in March with input costs rising at their fastest pace since June 2022, in part passed on by firms who also saw their margins compressed.
The data signals weakening activity in the final month of the fiscal year for one of the world’s top-performing economies, and highlights the risks to growth in India and globally from the West Asia conflict.