By Fabiana Negrin Ochoa
Sentiment among Asia's manufacturers and services providers is deteriorating as the Middle East war sends commodity prices soaring, threatening to squeeze margins.
Purchasing managers surveys compiled by S&P Global paint a grim picture of how the conflict is starting to affect businesses in Asia.
The HSBC flash India PMI composite output index for March, which tracks production in manufacturing and services, signaled the weakest pace of growth in nearly three and a half years.
"Output growth eased across both manufacturing and services as the energy shock unfolds," said Pranjul Bhandari, chief India economist at HSBC.
India is highly exposed to the Middle East-driven turmoil in energy markets as a major energy importer with limited strategic reserves. Since the fighting began, the benchmark Sensex index has fallen roughly 7.5% and the rupee has hit repeated lows against the dollar.
It's not just oil. Analysts at Elara Capital, led by Gagan Dixit, said in a recent report that two-thirds of India's liquefied gas imports pass through the now-blocked Strait of Hormuz, adding supply risk.
India's goods producers reported that the war weighed on production growth by fueling instability, lifting inflationary pressures and dampening demand amid uncertainty, PMI data showed.
Service providers also indicated weaker business activity, citing disruptions to international travel and the broader impact of the conflict. For now, companies are absorbing part of the hit by squeezing margins, Bhandari said. But if the conflict persists, some may pass on those costs.
Survey data from Japan was similarly downbeat, with growth across the private sector cooling in March.
The slowdown coincided with the outbreak of the war, which sparked a sharp jump in input costs as firms reported supply chain difficulties and higher fuel prices, said Annabel Fiddes at S&P Global Market Intelligence.
"A weak yen exchange rate and rising labor costs also contributed to the upturn in expenses, further adding to the squeeze on company margins," she said.
Like India, Japan relies heavily on energy imports. While it has reserves and other fiscal tools to draw on, a prolonged shock is raising concerns about inflation and a deeper impact on industry.
Uncertainty over the duration and impact of the conflict has also weakened confidence in future output, Fiddes added, though manufacturers expressed some hope that demand across industries such as AI, and semiconductors will help buoy growth.
In Australia, the March PMI signaled the first contraction in private-sector output in 18 months.
"These flash data provide the first look into the extent to which war in the Middle East has rippled through the global economy," said Eleanor Dennison at S&P Global Market Intelligence.
Australian companies are feeling less optimistic about the year ahead, with cost pressures at their highest in more than three years, demand weakening and supply chains in disarray, the economist said.
The Australia headline flash composite output index fell below the 50.0 mark that separates expansion from contraction in March, S&P Global said. That snapped a 17-month run of growth, and marked the steepest drop in since December 2023.
The downturn was broad-based by sector, though more pronounced in services, with evidence linking lower output to deteriorating demand partly due to global uncertainty and economic disruption from the war.
Still, softer-than-expected PMI data is unlikely to reverse the recent hawkish shift in central bank expectations, said Ipek Ozkardeskaya at Swissquote.
Rather, cooling growth combined with rising inflation will fuel stagflation concerns and further dim sentiment, she wrote in a note.
Even if the war stops soon, repairing Middle Eastern energy infrastructure will take time, making an energy-driven market shock harder to quell than past crises, the analyst said.
Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com
(END) Dow Jones Newswires
March 24, 2026 05:17 ET (09:17 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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