Shockwave of war is rippling through the global economy

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 eurozone. 

Every purchasing managers’ index (PMI) for which Bloomberg collects estimates is expected to show a decline when initial numbers for March are released on Tuesday (Mar 24), going by 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 the 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, have prompted a spectrum of central bank responses in the past few days.

Among them, UK officials shelved easing plans, eurozone peers adopted a tightening bias, and Australian policymakers went ahead with an increase in interest rates.

After the US 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 indices, 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.”

The list of initial index readings scheduled for Tuesday ranges from Australia, Japan and India to the eurozone, UK and US. 

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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 Organisation for Economic Co-operation and Development, 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. 

US President Donald Trump has “few good options at this point”, said Jennifer Welch, Becca Wasser, Adam Farrar and Chris Kennedy from Bloomberg Economics.

“Three weeks of heavy US-Israeli strikes, including attacks that killed Iran’s leaders, haven’t loosened Teheran’s grip on Hormuz or its defiance of US demands – more of the same may not achieve more.”

They added that this leaves Trump 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 Teheran to capitulate”.

Elsewhere, inflation data in Japan, Australia and the UK, Chinese industrial profits, and central bank decisions from Norway to Mexico may focus investors. 

US and Canada

US economic data releases will be sparse and include S&P Global’s preliminary March manufacturing and services PMIs.

On Friday, the University of Michigan will issue its final March consumer sentiment index. The survey will help illustrate whether Americans grew even more concerned about surging prices at the petrol pump than they were earlier in the month.

Also in the coming week, investors will monitor comments from Fed officials in the wake of the central bank’s decision to keep rates unchanged as they monitor the economic fallout from the Iran war. US central bankers maintained their forecast of just one rate cut this year.

On Tuesday, Fed governor Michael Barr will speak on the economic outlook. Stephen Miran, the lone dissenter who favoured lowering rates at the March policy meeting, vice-chair Philip Jefferson, and regional Fed presidents Mary Daly of San Francisco and Anna Paulson of Philadelphia are also slated for speaking engagements. 

Bank of Canada senior deputy governor Carolyn Rogers will speak in Brandon, Manitoba, on the forces shaping Canada’s economic outlook and financial system, including this year’s renewal of the monetary policy framework. 

Meanwhile, flash wholesale and manufacturing data will offer an early read on how two tariff-hit sectors are performing in the first quarter.

Asia

Inflation data will be a focus in Asia. Data on Tuesday is expected to show that Japan’s consumer price growth moderated in February after utility subsidies reduced energy costs and food price gains eased compared with a year earlier. 

The key gauge that excludes fresh food likely slowed below the Bank of Japan’s 2 per cent 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 consumer price index (CPI) will likely show the trimmed mean gauge remained elevated in February. Such data would justify the back-to-back hikes undertaken by the Reserve Bank of Australia and may underpin bets on another increase to borrowing costs in May. 

Singapore will also release its 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 will report year-to-date industrial profits through February on Friday after annual profits eked out a 0.6 per cent gain last year, the first such increase since 2021. 

Trade figures are due from the Philippines, Thailand, South Korea and Hong Kong; New Zealand will close 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 per cent 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 per cent target band for much of the year. 

Pricing in the overnight swaps market indicates traders are predicting a roughly 42 per cent chance of a hike by July.

Europe, Middle East, Africa

The aftermath of a big week for monetary decisions will reverberate around Europe, with remarks by several policymakers on the schedule as well as some key data.

Economists predict that UK inflation numbers on Wednesday will show the slowdown in annual price growth halted at 3 per cent in February, in a report that will draw particular attention after Britain’s 10-year gilt yield touched the highest since 2008. 

That market shift followed the Bank of England’s pivot away from rate cuts to declare itself “ready to act”. Deputy governor Sarah Breeden, chief economist Huw Pill, and rate-setters Megan Greene and Alan Taylor are all scheduled to speak. 

From the European Central Bank (ECB), which could raise rates if needed as soon as its next decision on Apr 30, speakers on the calendar include chief economist Philip Lane on Monday. President Christine Lagarde will address the annual ECB and Its Watchers conference in Frankfurt on Wednesday. 

Swiss National Bank president Martin Schlegel will speak in Zurich on Tuesday, following the central bank’s move to restate that its willingness to intervene against war-driven haven flows into the franc has increased. 

The next day, Sweden’s Riksbank publishes minutes of its own decision, where policymakers kept borrowing costs steady. 

Some more monetary meetings are planned for the coming days:

• On Tuesday, Hungary’s central bank will set rates for the final time before the nation’s make-or-break election, with the energy crisis likely to curb appetite for further cuts.
• Norwegian officials are poised to keep borrowing costs on hold on Thursday after data showed no significant relief in underlying price pressure and an outlook for a resilient economy. Governor Ida Wolden Bache is expected to signal even less easing than the current view of a quarter-point cut per year.
• The same day, South Africa’s central bank is expected to hold its rate steady at 6.75 per cent, as it assesses inflation fallout from the war that has weakened the rand and sent oil prices surging.

Latin America

In a busy week for policymaking in Latin America, the Central Bank of Brazil on Tuesday will publish the minutes of its Mar 18 decision to deliver a cautious quarter-point cut from a near two-decade high 15 per cent.

With the war in the Middle East introducing so much uncertainty, central bank chief Gabriel Galipolo and colleagues offered minimal forward guidance in their post-decision statement and are unlikely to break new ground here.

Latin America’s No 1 economy will also post the central bank’s monetary policy report, mid-month inflation readings, and February unemployment figures.

The war in Iran will also be a factor during central bank meetings in Chile and Mexico. For Banco Central de Chile, the conflict has quite likely turned a possible quarter-point rate cut, from 4.5 per cent, to a definite hold, given that the Andean nation imports nearly all its fuel.

For Banxico, the higher oil prices and a weaker peso stemming from the Middle East conflict have likely tipped the balance in Latin America’s No 2 economy from good odds for a quarter-point cut to a fairly certain hold.

Mid-month inflation data posted before Banxico’s board gathers may well cement a decision to keep the key rate at 7 per cent for a second meeting.

Argentina’s January GDP-proxy data is likely to dovetail with the overall cooling seen in South America’s No 2 economy since the first quarter of 2025.

Many analysts see December’s strong output readings as more of a headfake than a trend, and have been marking down their 2026 growth estimates accordingly. BLOOMBERG