West Asia Conflict Triggers Global Stagflation Worries
The aggregate global consequences of seven weeks of conflict in West Asia are poised to surface in the upcoming week, coinciding with a second series of business surveys across various nations. The extent to which the dual pressures impacting growth and inflation reflected in purchasing manager indexes after the initial month of the Iran conflict have escalated in the second month will be a critical area of examination. The preliminary assessment for April across economies from Australia to the United States is set to be released on Thursday. According to forecasts, the indexes in Germany, France, the euro zone, and the UK are expected to exhibit significant decline, whereas the American indicators are projected to remain relatively stable. Ultimately, the data may indicate the extent to which stagflation is present. That ominous term — evoking the noxious mix of surging prices and stalling growth of the 1970s — was cited by Chris Williamson when summing up risks highlighted by the overall global measure in March. The survey results come on the heels of a dismal assessment in Washington, where financial leaders received cautionary guidance from the International Monetary Fund regarding a spectrum of possible scenarios, including the prospect of a near-recession globally. Despite the ongoing ceasefire in West Asia, the repercussions on growth and inflation are not easily reversible. “Even if the war ends tomorrow, it would take quite some time for the recovery to kick in,” stated Kristalina Georgieva during an interview. “The impact is already incorporated.”
Despite the prevailing pessimism, numerous policymakers exercise caution regarding their response strategies. Philip Lane, chief economist of the European Central Bank, articulated the approach he and his colleagues might adopt regarding reports like the PMIs as they determine interest rates in the upcoming month. “We will have a rich set of survey data,” Lane stated in Washington. “Certainly, the individuals responding to those surveys are observing the same reality that we are observing.” Currently, there is a lack of consensus regarding future developments, he noted. On Thursday, ECB officials will receive data on French business confidence, followed by Germany’s significant Ifo business climate gauge on Friday. Their counterparts at the Federal Reserve will observe the University of Michigan’s sentiment index, which is also scheduled for release at the end of the week. However, as Georgieva cautioned, even the most comprehensive assessment of the global economy by policymakers currently has its constraints. “We all need to learn to operate in an environment of high and permanent uncertainty,” she stated. “While a deal appears to be in sight that may bring an end to the current round of US-Iran hostilities and relief to energy markets, it’s unlikely to result in a full or lasting peace.” Israel seems disengaged from negotiations and maintains its view of Iran as a significant threat. Trust between the US and Iran remains diminished, with emerging discrepancies in the interpretation of critical terms (e.g., Hormuz), indicative of persistent tensions.
In other regions, a potential increase in inflation figures driven by conflict, observed from Canada to the UK to South Africa, along with interest rate decisions from Turkey to Indonesia, could be notable developments. The highlight of this week’s US economic data will be the retail sales figures. Analysts anticipate a significant rise in total sales for March, primarily driven by a notable surge in gasoline expenditures. The data presented do not account for inflationary adjustments, and motorists faced increased expenses at the pump due to the conflict in Iran. Excluding gasoline and autos, however, the report anticipated for Tuesday is expected to indicate more subdued demand, as elevated fuel costs have led budget-constrained consumers to tighten their spending on other items. Despite a decrease in the average price of gas since the beginning of the month, it continues to hover around $4 per gallon. On Thursday, S&P Global will release its preliminary PMIs for April, with the University of Michigan’s final consumer sentiment index for the same month following a day later. The initial assessment established an unprecedented low. In the interim, Kevin Warsh is set to testify before the Senate Banking Committee on Tuesday, an event that could be regarded as the most eagerly awaited confirmation hearing for a Federal Reserve chair nominee in many years. Investors will pay close attention to Warsh’s perspective on monetary policy that aligns with President Donald Trump’s requests for lower interest rates, while also addressing the concerns of traders who remain cautious about inflation, particularly in the context of a war-induced oil price shock. In the northern region, projections indicate that Canada’s headline inflation is anticipated to rise to 2.6% in March, up from 1.8%, primarily influenced by increases in gas prices. Food inflation, a continual concern for Canadians, is anticipated to moderate somewhat as the base-year distortion from last year’s sales tax holiday dissipates from the data.
The Bank of Canada’s business outlook and consumer expectations surveys for the first quarter will provide critical insights into the perceptions of firms and households regarding the impact of the oil price shock on investment, labor markets, and inflation dynamics. Inflation risks associated with the global energy shock will take precedence on Asia’s economic calendar in the upcoming week, as price data and business surveys are poised to assess the speed at which elevated costs are permeating the economy. China’s loan prime rate decision on Monday is anticipated to result in no alterations, as policymakers navigate the delicate equilibrium between fostering growth and managing currency pressures. Trade data from New Zealand, Japan, Thailand, and Malaysia over the week will provide an initial assessment of external demand. India’s infrastructure output is also due. Attention shifts on Tuesday to New Zealand’s first-quarter inflation report, a crucial determinant for the central bank’s policy perspective. On Wednesday, Indonesia’s policymakers are anticipated to maintain the current interest rate, carefully balancing the need for currency stability with the pressures of increasing imported inflation. Thursday presents the most substantial influx of data for the week. PMI readings from Australia, Japan, and India will deliver a timely assessment of business conditions, while inflation data from Singapore, Hong Kong, and Japan will present preliminary indications of the transmission effects stemming from elevated energy prices. The central bank of the Philippines is anticipated to increase its benchmark rate by 25 basis points to 4.5%, highlighting a tightening bias observed in certain areas of the region. Attention will be directed towards South Korea’s consumer confidence reading for indications of pressure on households. Japan’s department store sales and leading indicators conclude the week, providing a measure of the robustness of domestic demand and the short-term forecast.
A series of economic indicators from the UK will provide insight into the state of the economy, coinciding with Prime Minister Keir Starmer’s ongoing challenges. Data released on Tuesday could indicate a decline in wage pressures for the three-month period ending in February, occurring just prior to the onset of the conflict. Inflation is anticipated to rise to 3.3% in March, up from 3%, largely influenced by the escalation of the conflict in Iran, which has exerted upward pressure on energy prices. In the euro zone, ECB President Christine Lagarde is scheduled to speak before the onset of a pre-decision quiet period. Belgium, recently downgraded by Moody’s Ratings, may encounter an additional downgrade on Friday following a review by S&P Global Ratings. This week is poised to be significant for the Swiss National Bank, featuring two public engagements by officials prior to the release of first-quarter results on Thursday. The annual general meeting of the central bank is scheduled for the next day, presided over by President Martin Schlegel. In South Africa, Reserve Bank Governor Lesetja Kganyago is scheduled to address the release of the Monetary Policy Review on Tuesday and participate in a roadshow on Wednesday, as policymakers evaluate the inflationary implications stemming from the conflict in Iran.
Rising oil prices, a consequence of the ongoing war, are anticipated to exacerbate inflationary pressures. The upcoming inflation report, the first since the onset of the conflict, is projected to show a slight increase to 3.1% from 3% in February. In the realm of monetary policy, a majority of analysts anticipate that Turkey’s central bank will maintain its primary interest rate at 37% for the second consecutive meeting on Wednesday. The ongoing conflict in Iran is contributing to elevated energy prices, which in turn exacerbates inflationary pressures, thereby necessitating a further pause in easing measures. Three out of 11 economists surveyed anticipate that the bank will alter its course, with a projected increase in rates by 300 basis points. In Russia, central bank policymakers will convene on Friday to deliberate the continuation of easing measures in light of increased uncertainty surrounding potential inflation risks. In the upcoming week, two of the region’s lesser-known inflation-targeting central banks are scheduled to convene for monetary policy meetings. Banco Central del Uruguay has consecutively reduced borrowing costs over seven meetings, resulting in a current key rate of 5.75%. Inflation has consistently undershot the target for eight months in a row, reaching a near seven-decade low of 2.94% in March. In March, Paraguay’s central bank maintained its key rate at 5.5% following a series of quarter-point reductions. The March inflation report indicated a decline in the annual rate to 1.9%, down from 2.3% in February.
Colombian GDP-proxy data for February could indicate a slight recovery from January; however, analysts have been revising down their growth projections for 2026. The consensus anticipates a 2.6% expansion, consistent with the previous year. Significant inflationary pressures, which existed prior to the onset of conflict in West Asia, will compel the central bank to maintain a tightening stance, thereby presenting further challenges to economic growth. In Argentina, GDP-proxy data is expected to once again underscore the uneven growth afflicting South America’s second-largest economy — with the energy and mining sectors flourishing, while construction and manufacturing struggle — prompting analysts to revise their 2026 GDP projections downward. Consumer confidence and trade figures are forthcoming. As the week concludes, observers of Mexico will gain a clearer perspective on the prudence of Banxico’s recent quarter-point rate reduction. Economic activity data for February may not alleviate renewed recession concerns — challenges include sluggish US growth coupled with trade and tariff uncertainties — while the early April consumer price figures may challenge the perception that high inflation is solely supply-driven and transient.
