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Workers at German steelmaker Salzgitter AG stand in front of a furnace at a plant in Salzgitter, Germany, March 1, 2018.<\/p>\n
Fabian Bimmer | reuters<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Private sector output in the euro zone fell to a 10-month low in March amid growing evidence of the impact of the Iran conflict on the global economy. <\/p>\n
The closely watched S&P global flash Purchasing Managers’ Index (PMI) for the euro zone fell to 50.5 in March, a sharp decline from 51.9 reported in February. <\/p>\n
Economists polled by Reuters had expected a mild decline to 51.0. The 50.0 range separates the expansion from contraction zones.<\/p>\n
The reading provided fresh warnings that the region faces the threat of imminent stagflation \u2013 a toxic combination of high inflation and unemployment and stunted growth.<\/p>\n
Chris Williamson, chief business economist at S&P Global Market Intelligence, commented on Tuesday, “The flash Eurozone PMI is ringing stagflation bells as the war in the Middle East is pushing prices higher and stunting growth.” <\/p>\n
“Costs for firms are rising at the fastest rate in three years amid rising energy prices and blockage of supply chains as a result of the war. Supplier delays have reached their highest level since mid-2022, largely linked to shipping issues.”<\/p>\n
Euro zone companies surveyed by S&P Global saw a modest decline in hiring during March, as S&P Global economists lowered output expectations for the year compared with February forecasts.<\/p>\n
“Stagflation” is often seen as a “worse-case scenario” for economies and creates a dilemma for central banks because the tools they typically use to deal with high inflation \u2013 higher interest rates \u2013 can stifle growth and employment, while lowering rates can boost growth but increase demand and inflation.<\/p>\n<\/div>\n
The euro zone is not alone in slowing private sector activity due to the Iran war, with India’s PMI data on Tuesday showing output growth slowed to its lowest level since October 2022. <\/p>\n<\/div>\n
The current turmoil in the Middle East has made previous growth and inflation forecasts largely meaningless, leaving businesses and policymakers to guess the direction of travel for input costs and inflation without knowing how long the conflict will last.<\/p>\n