By Ed Frankl
Business activity in Europe and parts of Asia slowed as energy prices and uncertainty were driven higher by the war in the Middle East, while a cooling of new orders pointed to longer-lasting harm if the conflict continues or escalates.
Data firm S&P Global said Tuesday that its composite Purchasing Managers Index for the eurozone--a gauge of activity at manufacturers and service providers--fell to 50.5 in March, compared with 51.9 in February. A consensus of economists polled late last week by The Wall Street Journal expected a higher 51.0. It marked the lowest level since May last year, remaining only just above the 50-point threshold that separates growth and contraction.
"The flash eurozone PMI is ringing stagflation alarm bells as the war in the Middle East drives prices sharply higher while stifling growth," Chris Williamson, chief business economist at S&P Global Market Intelligence, said.
A surge in energy and food prices could hit the eurozone economy hard. In the most severe scenario, in which oil prices would peak at $145 a barrel, the European Central Bank last week projected inflation to average at 4.4% this year.
"The economic outlook has weakened significantly, but all now rests on how the conflict unfolds," ING economist Bert Colijn said in a note to clients.
Input cost inflation rose at its fastest rate in just over three years, while the overall level of output growth was dragged by a deterioration in new orders, S&P said.
Companies were surveyed between March 12 and March 20, after the U.S. and Israel first attacked Iran on Feb. 28. President Trump on Monday said he was postponing strikes against Iranian power plants for five days after what he called constructive talks with Iran, though Iranian leaders later said no such talks had taken place.
Similar surveys released Tuesday pointed to a sharp slowdown in activity in India, which relies heavily on energy imports that transit through the Strait of Hormuz, the waterway that has largely been closed as a result of the conflict. Before the war began, 60% of India's liquefied petroleum gas, used for cooking in households and restaurants, came from the Gulf, according to Capital Economics. Input costs climbed to a near four-year high, with a range of items reported as up in price including aluminum, chemicals, electronic components, energy, food, iron ore, leather, oil, rubber and steel.
The composite PMI there fell to 56.5 from 58.9, its lowest level since October 2022. Australia recorded the strongest fall in output since 2023, while Japanese activity also slowed.
In the U.K., activity fell to a six-month low, as squeezed margins led to a further increase in job shedding, the survey showed.
Trump over the weekend threatened to hit Iran's power facilities unless the country fully reopened the Strait of Hormuz, through which around 20% of the world's oil supply typically flows.
Investors had ramped up bets that central banks like the ECB would raise rates this year, amid soaring energy prices prompted by the near-closure of the trade artery.
ECB Vice-President Luis de Guindos reiterated on Monday that the longer and more widespread the conflict, the greater its impact would be on the eurozone's economy. The central bank raised its inflation forecasts and lowered its growth expectations for this year.
In Europe, climbing oil-and-gas prices will likely threaten some of the recent boost to industry coming from Germany's fiscal stimulus. The country has unlocked around $1 trillion that meant industrial production picked up toward the end of 2025.
Growth in Germany's manufacturing industry accelerated in March--with weakness there coming instead from the services sector--according to S&P's PMI data, though some of that could have come as firms sought to get ahead of predicted future supply-chain shocks.
"Demand has in some cases been boosted by companies reacting to the disruption and uncertainty brought on by the war in the Middle East, with some bringing forward purchases over concerns about potential supply disruption in the coming months," said Phil Smith, economics associate director at S&P Global Market Intelligence.
The World Trade Organization last week said the Middle East conflict could weigh heavily on trade and output. It pencils in growth in trade volumes this year at 1.9%, a slowdown from 2025's 4.6%, which had been propelled by artificial-intelligence products and frontloading of tariffs.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
March 24, 2026 06:55 ET (10:55 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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