Shockwave of war ripples through global economy

2026-03-22 - 03:01

S&P Global Market Intelligence said most nations are focused on the war’s impact on inflation. (EPA Images pic) LONDON: The global economy’s first collective health check since war broke out in the Middle East will arrive in the form of business surveys from the US to the euro zone. Every purchasing manager index (PMI) for which Bloomberg collects estimates is anticipated to show a decline when initial numbers for March are released on Tuesday, according to the median forecast of economists. Their outlooks point to a synchronised weakening across both manufacturing and services. Such results will offer an initial glimpse of the cumulative economic damage already racked up, three weeks after US and Israel attacked Iran. The subsequent spike in energy prices, sparked by disruptions to regional shipping and production, and the consequent threat to global consumer prices, has prompted a spectrum of central-bank responses in the past few days. Among them, UK officials shelved easing plans, euro-zone peers adopted a tightening bias, and Australian policymakers went ahead with an increase in interest rates. After the Federal Reserve’s signal that cuts in borrowing costs are still a long way off, investors negated bets on any such move this year. “Front of mind is the impact of the war on inflation,” Chris Williamson, chief business economist at S&P Global Market Intelligence, which compiles the indexes, said in a report. “Central banks will also need to consider downturn risks from the war, meaning clues will also be sought from the PMIs for the impact on demand and business confidence,” Williamson said. The list of initial index readings scheduled for Tuesday ranges from Australia, Japan and India to the euro zone, UK and US. Germany, Europe’s biggest economy, will release its closely watched Ifo business expectations gauge the same day, with a slump to a 13-month low anticipated. Measures from France and Italy are due later in the week. Also capturing the shifting outlook will be forecasts from the Paris-based OECD, the first such combined assessment since the outbreak of war. They may offer a foretaste of more comprehensive predictions that the International Monetary Fund releases in mid-April. What Bloomberg economics says: “Trump has few good options at this point. Three weeks of heavy US-Israeli strikes, including attacks that killed Iran’s leaders, haven’t loosened Tehran’s grip on Hormuz or its defiance of US demands – more of the same may not achieve more. “That leaves him with two other choices: end the US military operation, ideally prompting Iran to allow tankers to return to Hormuz, or escalate in a bid to force Tehran to capitulate,” economists Jennifer Welch, Becca Wasser, Adam Farrar and Chris Kennedy said. Elsewhere, inflation data in Japan, Australia and the UK, Chinese industrial profits, and central bank decisions from Norway to Mexico may focus investors. Asia Inflation data will be a focus in Asia. Japan’s consumer price growth moderated in February after utility subsidies reduced energy costs and food price gains eased compared with a year earlier, data on Tuesday are expected to show. The key gauge that excludes fresh food likely slowed below the Bank of Japan’s 2% inflation target for the first time in almost four years. It will probably be a short-lived phenomenon given the surge in oil prices after the March escalation of the Iran war. The following day, Australia’s CPI will likely show the trimmed mean gauge remained elevated in February, data that will justify the back-to-back hikes undertaken by the Reserve Bank and may underpin bets on another increase to borrowing costs in May. Singapore also releases February CPI in the coming week. Nations releasing PMI figures for March include Australia, Japan and India, with all three expected to report manufacturing gauges stayed in expansionary territory. China reports year-to-date industrial profits through February on Friday after annual profits eked out a 0.6% gain last year, the first such increase since 2021. Trade figures are due from the Philippines, Thailand, South Korea and Hong Kong, and New Zealand closes out the week with its March consumer confidence report. In policy action, Sri Lanka’s central bank is expected to keep its rate steady at 7.75% on Wednesday, extending the streak of holds to five meetings and reinforcing views that the easing cycle may have run its course as authorities eye an expected acceleration in inflation. Elsewhere, Reserve Bank of New Zealand governor Anna Breman will outline her thinking on inflation implications from the Middle East conflict in a speech on Tuesday, with economists expecting price growth to breach the top of its 1% to 3% target band for much of the year. Pricing in the overnight swaps market indicates traders are predicting a roughly 42% chance of a hike by July.