For the first few weeks, the Iran war hit the global economy mostly through headlines—oil spikes, shipping disruptions, and market panic. Now it’s showing up where policymakers pay the closest attention: business surveys.
The latest “flash” purchasing managers’ indexes (PMIs)—early-month snapshots from companies across major economies—suggest the conflict is already delivering a classic double whammy: weaker activity alongside rising costs. That combination is why “stagflation” talk is creeping back into the conversation, even if it’s still too early to declare it.
The core mechanism: energy shock + uncertainty = demand softens, costs surge
The transmission is brutally straightforward:
- Energy prices jump (oil, gas, transport fuels)
- Shipping and delivery times worsen
- Companies pay more for inputs
- Consumers feel a cost-of-living squeeze
- Firms hesitate on hiring and investment
- Central banks face uglier trade-offs
These PMIs are among the first broad “real economy” indicators to capture that chain reaction across multiple regions at once.
What the surveys are saying, region by region
Euro zone: Growth nearly stalls, supply chains lurch backward
The euro area’s private sector is still technically expanding—but barely.
- The composite PMI fell to 50.5 (from 51.9), a 10-month low
- Input costs jumped to their highest in more than three years
- Supply chains showed their worst disruption since mid-2022
- Two eye-catching sub-index moves:
- Manufacturing price pressures surged (manufacturing prices index jumped to 68.6 from 58.0)
- Delivery times deteriorated sharply (delivery times index fell to 40.9 from 47.3), signaling firms expect major delays
Add in rising petrol and diesel costs, higher borrowing rates as markets price tighter policy, and the euro zone’s already-thin growth buffer looks even thinner.
Germany: Services cooled, factories got a brief “panic-order” bump
Germany’s numbers show how messy the early phase of a shock can be:
- Germany’s composite PMI fell to 51.9 (from 53.2), the weakest in three months
- Services slowed (services PMI 51.2), while manufacturing strengthened (manufacturing PMI 51.7)
- That factory “strength” may be temporary: some companies appear to be bringing forward purchases to get ahead of possible shortages—classic pre-disruption behavior
- Cost pressure remains the bigger story: input price inflation surged to multi-year highs, with factory gate prices also accelerating
United States: Slower momentum, inflation gauges flare up, hiring softens
The U.S. survey points to a familiar problem: the economy cools, but inflation risks re-ignite.
- Composite PMI: 51.4 (down from 51.9), an 11-month low
- The weakness came mostly from services (services PMI 51.1)
- Manufacturing actually improved (manufacturing PMI 52.4), helped by easing tariff-related drag in orders
- But the inflation signals jumped:
- Input prices rose to 63.2 (from 60.0)
- Output prices rose to 58.9 (from 56.9)
- The survey’s employment measure slipped into contraction at 49.7, the first drop in about a year
The implication: businesses are feeling squeezed by higher costs and uncertainty, and some are trimming overhead—while still passing part of the price increase on to customers.
UK: A sharp slowdown—and a cost spike that screams “problem”
Britain’s PMI showed one of the fastest shifts:
- Composite PMI fell to 51.0 (from 53.7), the slowest growth in six months
- Manufacturers’ input cost gauge jumped to 70.2 (from 56.0), described as the biggest surge since 1992
- Firms reported higher fuel, transport, and energy-intensive input costs—and faster price increases
This puts the Bank of England in a bind: inflation pressure rises while growth momentum fades.
Japan: Growth continues, but momentum cools
Japan’s private sector is still expanding, but the pace softened:
- Composite PMI: 52.5 (down from 53.9), the slowest rise in three months
The broad theme mirrors elsewhere: uncertainty + cost pressure = slower growth momentum.
India: Domestic demand weakens, exports surge, margins tighten
India’s numbers show a split economy—softening at home, stronger abroad.
- Composite PMI: 56.5 (down from 58.9), a three-year low
- Manufacturing PMI: 53.8 (down from 56.9), a 4½-year low
- Services PMI: 57.2 (down from 58.1)
- Input costs rose at the fastest pace since June 2022, with firms absorbing part of the increase by squeezing margins
- A bright spot: record international orders, even as domestic demand cooled
India is especially exposed because it imports most of its oil—and an energy shock hits quickly through prices.
Why “stagflation” talk is back (and why it’s still early)
These surveys are flashing the same warning light in multiple places:
- Growth is slowing (PMIs falling toward 50)
- Prices are accelerating (input and output price gauges jumping)
- Supply is disrupted (delivery times worsening)
That’s the recipe for stagflation—yet it’s still early. One month of flash data doesn’t make a trend. The next question is duration: Does the energy shock fade, or stick?
What to watch next
- Oil, diesel, and shipping costs
If logistics remain constrained, inflation pressure can stay elevated even if demand weakens. - Business hiring intentions
The U.S. survey already hints at softening employment—watch whether that spreads. - Central bank tone
If inflation expectations rise faster than growth falls, policymakers may lean tighter than markets want. - Second-round effects
The first wave is energy. The second wave is everything built on energy: transport, food, manufacturing inputs, and household spending.
Bottom line
The Iran war is no longer just a markets story. It’s now a growth-and-inflation story—and business surveys are showing the first broad signs of that shift: activity cooling, costs rising, confidence dipping, and central banks facing a nastier policy dilemma.
