The Iran war has been ongoing for nearly two months, resulting in an unprecedented disruption of energy supplies. While most countries around the world have shown varying degrees of economic resilience, concerns about food supply have been raised, leading to a downward revision of economic growth expectations.
This week, a series of business and consumer confidence indices have shown a declining trend, with the outlook of top listed companies globally beginning to turn cautious. The S&P Global Purchasing Managers’ Index (PMI) released on Thursday (April 23) showed that the Eurozone countries were most severely impacted, with the PMI falling from 50.7 in March to 48.6 in April, indicating a contraction in economic activity.
The input price index surged from 68.9 to 76.9, indicating a substantial increase in production costs for factories in the Eurozone. At the same time, the major services industry index in the EU dropped from 50.2 to 47.4, well below Reuters’ estimated 49.8.
Chris Williamson, Chief Business Economist at S&P Global, stated that the Eurozone is increasingly mired in economic difficulties due to the Middle East war, and the escalating supply shortages could further restrain economic growth and push up prices in the coming weeks.
Although there have been some improvements in economic activities in the United States, supply shortages and price pressures have led to a certain degree of panic buying. Delivery times and output prices have reached their highest levels since COVID-19.
The Manufacturing Purchasing Managers’ Index (PMI) rose from 52.3 in March to 54.0, reaching a 47-month high, exceeding economists’ expectations of 52.5. The factory new orders index also jumped from 52.3 in March to 54.8. The Services Purchasing Managers’ Index (PMI) rebounded from 49.8 last month to 51.3, after experiencing its first contraction since January 2023.
Contrary to expectations, reports from Japan, India, the UK, and France indicated an increase in output levels. S&P believes that this could be due to businesses accelerating production out of concerns about worsening supply chain disruptions. It is worth noting that although Japan’s factory output growth has reached its highest level since February 2014, input costs have also soared to the highest level since early 2023.
This early production, similar to the rush by companies last year to increase product exports before the United States raised trade tariffs, indicates that economic activity will subsequently decline.
Following the outbreak of the Iran war, Reuters analyzed statements from 166 companies and found that 26 companies had withdrawn or downgraded their financial expectations, 38 companies hinted at price increases, and 32 companies warned that the war would impact their financials.
The increase in fuel costs directly raises the overall inflation rate, with the U.S. Consumer Price Index (CPI) in March recording its largest increase in almost four years, while prices in the UK and Eurozone also saw rises. Fortunately, the core inflation rate, excluding fuel costs, has not experienced such a sharp increase so far.
However, there are some exceptions. The surge in global artificial intelligence investments continues to drive technological activities, and the intense market fluctuations worldwide have brought positive results for trading companies. For example, South Korea achieved its fastest trade growth in nearly six years last quarter due to a surge in chip exports; the tech industry is expected to lead earnings growth in the U.S. in the first quarter; the London Stock Exchange Group recorded historic high revenue in the first quarter, with full-year revenue expected to reach the upper limit of expectations.
The timeline of the end of the U.S. strikes against Iran remains unclear, and the future impact on the world economy still depends on the duration of blockage in the Strait of Hormuz. The International Monetary Fund lowered its global economic growth forecast for this year to 3.1% last week and warned that if the conflict persists, the world economy will deteriorate further, possibly even leading to a full-scale recession.
Jamie Thompson, Head of Macroeconomic Scenarios at the Oxford Economics Research Institute, stated that research shows the impact of war on inflation, investments, and energy production could persist for several years. A quarter of the surveyed companies believe that these disruptive effects will continue beyond the end of this year.