By Ed Frankl
Business activity in the U.S., Europe and parts of Asia slowed this month 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 U.S. composite Purchasing Managers' Index fell to an 11-month low of 51.4 in March, compared with 51.9 in February.
"The flash PMI survey data for March signal an unwelcome combination of slower growth and rising inflation following the outbreak of war in the Middle East," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Prices for inputs spiked due to soaring energy prices, but costs for customers also jumped as selling prices reached a more than three-and-a-half-year high, S&P said. Employment fell for the first time in over a year, while supply delays were more widely reported than any time since October 2022, the survey responses said.
Following the pinch from tariffs, cuts to immigration and a weakening labor market, the spike in energy prices adds yet another headwind for growth and employment, said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.
"We remain of the view that the hit to activity and the labor market from the energy shock will be more powerful than the fleeting lift to core prices, and that Fed policy is more likely to be easier than tighter by the end of this year," he said.
Similar surveys released Tuesday pointed to a sharp slowdown in Europe.
A surge in energy and food prices could hit the eurozone economy hard. The European Central Bank last week projected inflation to average at 4.4% this year if oil prices peak at $145 a barrel. Eurozone inflation was 1.9% in February.
"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 in the eurozone 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.
Meanwhile, activity expanded at its slowest rate since October 2022 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, S&P said.
Australia recorded the strongest fall in output since 2023, while Japanese activity also slowed, PMI data showed.
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. Unemployment has already inched higher in recent months, according to official data.
President 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. On Monday, Trump 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.
Investors had ramped up bets that central banks like the ECB would raise rates this year, amid skyrocketing 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 revival in 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 the eurozone's manufacturing industry accelerated in March--with weakness in the 21-nation currency area coming instead from the services sector--according to S&P's PMI data. However, some of that manufacturing boost could have come as firms sought to get ahead of predicted future supply-chain shocks.
Phil Smith, economics associate director at S&P Global Market Intelligence, said that demand in Germany had been boosted by companies reacting to the disruption brought on by the war, with some bringing forward purchases over concerns about potential supply disruption in the coming months.
Firms in the U.S. also appeared to be heeding warnings over the outlook.
"Companies are meanwhile building safety stocks amid concerns that the war may lead to more protracted supply issues and price rises while trimming headcounts to reduce overheads," said S&P's Williamson.
The World Trade Organization last week said the Middle East conflict could weigh heavily on trade and output. It penciled in growth in trade volumes this year at 1.9%, though at only 1.4% should the recent oil price increase persist throughout 2026. Either result would mark a sharp slowdown from 2025's 4.6% growth, which was propelled by the artificial-intelligence boom and frontloading of tariffs.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
March 24, 2026 12:42 ET (16:42 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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