The global economy is facing ever more tangible strains from the energy shock triggered by the Iran war as factories grapple with soaring production costs and activity weakens even \u200bin services sectors, major surveys showed on Thursday, April 22.<\/p>\n
While much of the world\u2019s economy has shown resilience in the face of the worst disruption \u200cto energy supplies in modern times, the knock-on effects of the near-two-month conflict are starting to push up inflation while raising alarm bells about food supplies and prompting downgrades to economic growth.<\/p>\n
This week has already seen a string 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 \u200breleased on Thursday showed worse to come.<\/p>\n
They pointed to the 21 countries of the euro zone as among the hardest hit, with the preliminary reading \u200bof its headline index for the region falling from 50.7 in March to 48.6 in April \u2013 a sub-50 tally that \u2060indicates a shrinkage in activity.<\/p>\n
The input price index surged to 76.9 from 68.9, showing how euro zone factories are facing a jump in their production costs. The index \u200bcovering the bloc\u2019s dominant services industry meanwhile sank to 47.4 from 50.2, well below a Reuters poll estimate of 49.8.<\/p>\n
\u201cThe euro zone is facing deepening economic woes \u200bfrom the war in the Middle East,\u201d said Chris Williamson, chief business economist at S&P Global. \u201cIncreasingly widespread supply shortages meanwhile threaten to dampen growth further while adding more upward pressure to prices in the coming weeks.\u201d<\/p>\n
Counter-intuitively, purchasing managers reported higher output levels in Japan, India, Britain and France \u2013 an effect that S&P in some cases attributed to companies speeding up production on concerns of \u200bgreater supply chain disruption.<\/p>\n
That notably meant that Japan saw the strongest expansion in its factory output since February 2014 even as input costs rose at their sharpest \u200brate since early 2023.<\/p>\n
If such \u201cfront-loading\u201d is happening, that would be akin to the effect seen early last year when companies raced to push out their products ahead of a rise \u200cin U.S. \u2060trade tariffs \u2013 and implying a commensurate drop in activity later on.<\/p>\n
The PMI readings tallied with cautious statements around first-quarter earnings this week, with companies from French food group Danone to elevator-maker Otis Worldwide citing war-related shipment disruption.<\/p>\n
TECH AND FINANCE AMONG THE RARE OUTLIERS<\/p>\n
There are a few stark outliers. The global surge in AI investment continues to benefit technology activity while the sheer volatility on world markets is a boon to trading firms.<\/p>\n
South Korea, for example, delivered its fastest growth in nearly six years last \u200bquarter thanks to a jump in \u200bchip exports, while the tech sector \u2060is seen leading U.S. first-quarter earnings higher.<\/p>\n
London Stock Exchange Group (LSEG.L), opens new tab said earlier on Thursday it expects annual revenue growth at the upper end of its forecast range after posting record first quarter revenue boosted by a surge in trading activity.<\/p>\n
With no clear \u200bprospect as to how the conflict initiated by U.S. and Israeli strikes on Iran will end, the future impact \u200bon the world\u2019s economy \u2060remains dependent on how long it continues to logjam shipping through the Strait of Hormuz.<\/p>\n
The International Monetary Fund last week cut its global growth outlook to 3.1% for this year but warned the world was already drifting toward a more adverse scenario \u2013 including outright recession if the disruptions continue.<\/p>\n
Jamie Thompson, head of macro scenarios at Oxford Economics, \u2060said its review \u200bof the scarring impacts of previous energy shocks from the Yom Kippur War of the \u200bearly 1970s to the 2022 invasion of Ukraine by Russia showed lingering impacts on inflation, investment and energy production years later.<\/p>\n
He said one-in-four businesses surveyed by Oxford now believed that disruptions would be felt \u200bbeyond the end of this year. \u201cThis evidence highlights the risk of an abrupt adjustment in sentiment,\u201d he concluded.<\/p>\n
Writing and reporting by Mark John for Reuters<\/a><\/p>\n