The war in Iran is already slowing the world economy

The war in Iran is already taking its toll on major economies around the world, according to business surveys released on Wednesday. The surveys showed that soaring energy prices and rising uncertainty were weighing on economic activity and fueling expectations of further price increases, Reuters reported.

Initial results from a survey of purchasing managers at companies in the United States, Europe and Japan provide the most comprehensive look yet at the economic fallout from the nearly four-week conflict, which has cut off a significant portion of the world's energy supplies indefinitely.

The sudden jump in the prices of oil, gas and other related energy sources is a potentially double whammy for economies around the world, as it fuels rising inflation while simultaneously slowing economic growth.

In addition to the problems it creates for the leaders of these economies, including US President Donald Trump, such a situation has already led many central banks around the world to consider tightening monetary policy to curb price increases.

In eurozone countries, private sector growth has almost ground to a halt this month, as companies report longer delivery times and rising costs, which they plan to offset with higher prices.

According to S&P Global, the eurozone's business activity index fell to 50,5 in March, the lowest level in ten months, from 51,9 in February. Values ​​above 50 indicate growth, while below that signal a decline.

Cost and sales price indicators in the eurozone manufacturing sector have seen much sharper growth. At the country level, business confidence among French companies has fallen sharply, while private sector growth in Germany has slowed to its lowest level in three months.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the data from the eurozone "sounds the alarm for stagflation," warning of the risk of an unfavorable combination of economic stagnation and rising prices.

For now, few economists are talking about the possibility that the war could push the global economy into an open recession, even as the energy shock caused by the de facto closure of the Strait of Hormuz deepens.

S&P Global's survey for the United States showed a similar picture in the world's largest economy - higher energy prices are fueling fears of inflation, while weaker sentiment among companies also points to deteriorating employment prospects in the private sector.

Their preliminary composite PMI fell to 51,4 this month, the lowest level since last April. It was 51,9 in February, the second consecutive monthly decline. The biggest decline was in the services sector.

Reuters writes that other Group of Seven (G7) economies did not fare much better. In Britain, a survey by S&P Global showed that business activity grew at the slowest pace in six months, while production costs rose at the fastest rate since 1992.

In Japan, the preliminary composite PMI index, which covers industry and services, fell to 52,5 in March from 53,9 in February, the weakest growth in three months.

Outside the G7, India - which imports about 90% of its crude oil and almost half of its natural gas - saw its private sector grow at its weakest pace in three years in March. At the same time, production costs rose at the fastest pace since June 2022, and companies passed on some of those costs to customers, even as their profit margins shrank.

For now, few economists are talking about the possibility that the war could push the global economy into an open recession, even as the energy shock caused by the de facto closure of the Strait of Hormuz deepens.

"The scenario depends largely on the duration of the conflict and on the movement of energy prices," said Nikola Nobile of Oxford Economics, speaking about the possible consequences for the eurozone.

However, as Reuters points out, there are more and more people who understand that the economic consequences will not be short-lived, given the damage that Iranian attacks, carried out in response to American and Israeli missile strikes, have caused to energy infrastructure in the Gulf region.

The Organization for Economic Co-operation and Development (OECD) said last week that it was too early to assess the impact of the conflict on global growth, but warned of a "significant level of downside risk" to the world economy.