Growing pains from the energy shock caused by the Iran war are increasingly putting a strain on the global economy as factories are unable to produce goods, raising production costs, and activity weakens in services sectors, major surveys showed.
Much of the world economy has weathered the worst disruption to energy supplies in modern times, but the knock-on effects of the near-two-month conflict are beginning to push up inflation, raising fears of food supplies, prompting downgrades to economic growth.
The latest week has seen a series of downbeat business and consumer morale readings and cautious outlooks from top listed companies. But the closely watched set of S&P Global surveys of purchasing managers released recently suggested worse to come, and pointed to the 21 countries of the Eurozone 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 tipping point that indicates contraction.
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,” said Chris Williamson, chief business economist at S&P Global.
“Increasingly widespread supply shortages meanwhile threaten to dampen growth further while adding more upward pressure to prices in the coming weeks,” he said further.
On the other side of the Atlantic, however, the S&P measure of US activity picked up, but it shared many of the characteristics of panic buying in the face of war-induced supply shortages and price pressures that had weighed on European Union’s activity.
Delivery times and output prices were the highest since the post-COVID supply chain snarls and inflation wave peaked around four years ago.
The manufacturing PMI soared to a 47-month high of 54.0, up from 52.3 in March and surpassing economists’ forecasts for a 52.5 reading. A gauge of new orders received by factories rose to 54.8 from 52.3 in March.
The PMI for the broader services sector, which accounts for more than two-thirds of the index, recovered to a reading of 51.3 from 49.8 in March, the first contraction since January 2023.