West Asia Conflict Sends Shockwaves Through Global Economy
The first comprehensive assessment of the global economy since the onset of conflict in West Asia will be presented through business surveys spanning from the US to the euro zone. According to the economists, every purchasing manager index for which estimates is expected to indicate a decline when initial numbers for March are released on Tuesday. Their perspectives indicate a coordinated decline in both manufacturing and services sectors. These results will provide an early insight into the total economic toll that has already been incurred, three weeks following the attacks on Iran by the US and Israel. The recent surge in energy prices, triggered by disruptions in regional shipping and production, along with the looming threat to global consumer prices, has led to a range of responses from central banks over the past few days. Among them, UK officials postponed easing plans, euro-zone counterparts embraced a tightening stance, and Australian policymakers proceeded with an increase in interest rates. Following the Federal Reserve’s indication that reductions in borrowing costs remain distant, investors dismissed any expectations of such an action occurring this year. “Front of mind is the impact of the war on inflation,” Chris Williamson 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 upcoming index readings for Tuesday include data from Australia, Japan, and India, as well as the euro zone, the UK, and the US. Germany, Europe’s largest economy, is set to unveil its highly scrutinized Ifo business expectations index on the same day, with a decline to a 13-month low expected. Measures from France and Italy are expected later in the week.
Additionally, the forecasts from the Paris-based OECD will reflect the changing outlook, marking the first combined assessment since the onset of war. They may provide a glimpse of more detailed forecasts that the International Monetary Fund will unveil in mid-April. Economics States: “Trump has few good options at this point. Three weeks of heavy US-Israeli strikes, including attacks that killed Iran’s leaders, haven’t loosened Tehran’s grip on Hormuz or its defiance of US demands — more of the same may not achieve more. That leaves him 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 Tehran to capitulate.” In other regions, investors may turn their attention to inflation data from Japan, Australia, and the UK, alongside Chinese industrial profits and central bank decisions spanning from Norway to Mexico. The release of US economic data will be limited, featuring S&P Global’s preliminary March manufacturing and services PMIs. On Friday, the University of Michigan will release its final March consumer sentiment index. The survey aims to demonstrate if Americans have become increasingly worried about rising gas prices compared to earlier in the month. In the upcoming week, investors will closely observe remarks from Federal Reserve officials following the central bank’s choice to maintain steady interest rates while assessing the economic repercussions of the conflict in Iran. US central bankers upheld their projection of a singular rate cut for this year.
On Tuesday, Fed Governor Michael Barr delivers remarks on the economic outlook. Stephen Miran, the sole dissenter advocating for a rate reduction during the March policy meeting, along with Vice Chair Philip Jefferson and regional Fed presidents Mary Daly of San Francisco and Anna Paulson of Philadelphia, are scheduled for upcoming speaking engagements. Carolyn Rogers is set to address an audience in Brandon, Manitoba, regarding the factors influencing Canada’s economic outlook and financial system, with a focus on the renewal of the monetary policy framework this year. In the meantime, flash wholesale and manufacturing data will provide an initial insight into the performance of two sectors affected by tariffs in the first quarter. Inflation data is set to be a focal point in Asia. Japan’s consumer price growth is set to show moderation in February, as utility subsidies have lowered energy costs and food price increases have softened compared to the previous year, according to data expected on Tuesday. The primary measure that omits fresh food has likely dipped below the Bank of Japan’s 2 percent inflation target for the first time in nearly four years. It is likely to be a brief occurrence, especially considering the spike in oil prices following the escalation of the Iran war in March. The next day, Australia’s CPI is expected to reveal that the trimmed mean gauge stayed high in February, data that will support the consecutive hikes made by the Reserve Bank and could strengthen expectations for another rise in borrowing costs in May. In the upcoming week, Singapore will also release its February CPI. Nations set to release PMI figures for March include Australia, Japan, and India, with all three anticipated to report that manufacturing gauges remained in expansionary territory.
On Friday, China will report year-to-date industrial profits through February, following a modest annual profit increase of 0.6 percent last year, marking the first rise since 2021. Trade figures are anticipated from the Philippines, Thailand, South Korea, and Hong Kong, while New Zealand will conclude the week with its March consumer confidence report. Sri Lanka’s central bank is anticipated to maintain its rate at 7.75 percent on Wednesday, marking the fifth consecutive meeting without a change. This decision underscores the belief that the easing cycle may have reached its conclusion, as officials prepare for a projected rise in inflation. In another development, Reserve Bank of New Zealand Governor Anna Breman is set to share her insights on the inflation implications stemming from the West Asia conflict during a speech on Tuesday. Economists anticipate that price growth will exceed the upper limit of its 1 per cent to 3 per cent target band for a significant portion of the year. Pricing in the overnight swaps market suggests that traders foresee a roughly 42 per cent likelihood of a rate hike by July. The consequences of a significant week for monetary decisions will echo throughout Europe, with statements from various policymakers on the agenda alongside important data releases. Economists predict that UK inflation numbers released on Wednesday will reveal that the slowdown in annual price growth has stalled at 3 per cent in February. This report is expected to attract significant attention, especially following the rise of Britain’s 10-year gilt yield to its highest level since 2008. The market shift came after the Bank of England moved from a stance of potential rate cuts to announcing it was “ready to act.” Deputy Governor Sarah Breeden, economist set to deliver their remarks. From the European Central Bank, which may increase rates if necessary as early as its upcoming decision on April 30, speakers scheduled include chief economist Philip Lane on Monday. President Christine Lagarde is set to deliver a speech at the annual ECB and Its Watchers conference in Frankfurt on Wednesday. Martin Schlegel is set to address an audience in Zurich on Tuesday. This comes in light of the central bank’s recent declaration that its readiness to intervene against the influx of war-driven haven flows into the franc has heightened.
The following day, Sweden’s Riksbank releases the minutes of its recent decision, in which policymakers opted to maintain steady borrowing costs. In a bustling week for policymaking in Latin America, Brazil’s central bank on Tuesday releases the minutes of its March 18 decision to implement a cautious quarter-point cut from a near two-decade high of 15 percent. Amid the ongoing conflict in West Asia, BCB chief Gabriel Galipolo and his colleagues provided limited forward guidance in their post-decision statement, suggesting they are unlikely to make significant advancements in this area. Latin America’s leading economy will also release the BCB’s monetary policy report, mid-month inflation readings, and February unemployment figures. The conflict in Iran will also play a role in the discussions at central bank meetings in Chile and Mexico. For Banco Central de Chile, the conflict has likely shifted a potential quarter-point rate cut from 4.5 percent to a firm decision to hold, considering that the Andean nation relies on imports for nearly all its fuel. For Banxico, the elevated oil prices and a depreciating peso resulting from the West Asia conflict have probably shifted the dynamics in LatAm’s No. 2 economy from favorable prospects for a quarter-point cut to a strong likelihood of maintaining the current rate. Mid-month inflation data released prior to Banxico’s board meeting could solidify a decision to maintain the key rate at 7 per cent for a second consecutive meeting. Argentina’s January GDP-proxy data are expected to align with the broader cooling observed in South America’s No. 2 economy since the first quarter of 2025. Numerous analysts interpret December’s robust output readings as a potential illusion rather than a genuine trend, leading them to revise their 2026 growth estimates downward.
