①The latest data released this week shows that, affected by the Middle East war, factories around the world faced soaring input costs and supply chain disruptions in March, while weak underlying demand is threatening the fragile recovery momentum of the manufacturing sector; ②This geopolitical conflict has disrupted global logistics networks, causing delivery delays, pushing up input price inflation, and distorting overall growth indicators.
The latest data released this week shows that, affected by the Middle East war, factories around the world faced soaring input costs and supply chain disruptions in March, while weak underlying demand is threatening the fragile recovery momentum of the manufacturing sector.
This geopolitical conflict has disrupted global logistics networks, causing delivery delays, pushing up input price inflation, and distorting overall growth indicators.
The rise in oil and energy prices has prompted many manufacturers to take countermeasures by raising sales prices.
Chris Williamson, Chief Business Economist at S&P Global, stated that the supply shock has led to longer delivery times, falsely inflating composite PMI data, which is typically seen as an indicator of increased economic activity.
This is especially true for the Eurozone Composite PMI. The S&P Global Eurozone Manufacturing Purchasing Managers' Index (PMI), released on Wednesday, rose from 50.8 in February to 51.6 in March, surpassing the initial estimate of 51.4.
However, many industry insiders are far from pleased with the strong performance of the overall data. Hayes, Chief Economist at S&P Global Market Intelligence, noted, 'The Middle East conflict has left its mark on Eurozone manufacturing. As the logistics market adapts to disruptions in maritime shipping, supplier delivery times have significantly lengthened, and the surge in oil and energy prices has driven factory input cost inflation to its highest level since the end of 2022.'
Sub-item data shows that, driven by rising energy prices, the Eurozone's input cost inflation rate surged to a 41-month high. In response, many manufacturers raised sales prices at the fastest pace in over three years. 'We are seeing some inflationary pressures driven by the war in March directly pass through to final prices, which will ultimately undermine the competitiveness of the Eurozone,' Hayes said.
In the UK, which has already exited the EU, cost pressures have also risen sharply, and delivery delays have reached their longest level since mid-2022 as ships avoid the Strait of Hormuz.
A similar phenomenon has also appeared in the United States. The Institute for Supply Management (ISM) announced on Wednesday that the U.S. manufacturing Purchasing Managers' Index (PMI) in March slightly increased from 52.4 in February to 52.7, the highest reading since August 2022. However, at the same time, affected by the Middle East war, the factory raw material procurement price index rose from 70.5 in February to 78.3 in March, reaching a new high since June 2022, and suppliers' material delivery cycles were also extended.
Is the situation in Asia the most severe?
It is worth noting that, at least for now, Asian economies hit hardest by the blockade of the Strait of Hormuz are undoubtedly facing the most severe situation.
Unlike in Europe and the Americas, many economies in Asia have already begun to see declines in their PMI indices, indicating that soaring fuel costs and heightened uncertainty caused by the Iran conflict are having a negative impact.
These findings highlight the challenges faced by policymakers in Asia. The region purchases about 80% of the oil transported through the Strait of Hormuz, leaving many countries vulnerable to energy shocks triggered by the war—currently, drivers in the Philippines are grappling with diesel prices tripling, Vietnam is facing shortages of aviation fuel, and major South Korean cosmetics companies are scrambling to find plastic resins.
The Purchasing Managers' Index (PMI) for China released jointly by S&P Global and RatingDog on Wednesday showed that China’s RatingDog manufacturing PMI stood at 50.8 in March, remaining above the boom-bust line for the fourth consecutive month but retreating from February’s 52.1.
PMI data from other Asian economies show that manufacturing activity has slowed across economies ranging from Indonesia, Vietnam, to the Philippines, underscoring the impact the Middle East conflict has already had on businesses.
Japanese factories have also been hit by worsening corporate sentiment and cost pressures, which have risen to a 19-month high. The final S&P Global Japan Manufacturing PMI dropped significantly from 53.0 to 51.6. The rise in input prices reached the highest level since August 2024.
In South Korea, factory activity expanded at its fastest pace in more than four years, driven by semiconductor demand and new product launches. However, surging oil prices and a weakening won have pushed input price increases to their highest level since June 2022, raising concerns about rising costs.
Rajiv Batra, a senior analyst at JPMorgan, said earlier this week that the Middle East war has had the greatest impact on Asian countries, although within Asia, China and Malaysia have been relatively less affected by the oil shock.
Editor/Doris