Factories worldwide experienced a sharp rise in input costs and significant supply chain disruptions in March, triggered by the ongoing Iran war. This conflict has unsettled global logistics, causing delivery delays and pushing up inflation in input prices, which in turn distorted headline growth figures. The surge in oil and energy prices compelled manufacturers to increase their selling prices, complicating the fragile recovery of the manufacturing sector amid subdued demand.
Chris Williamson, chief business economist at S&P Global, noted that headline Purchasing Managers’ Index (PMI) figures, typically indicative of increased activity, were artificially inflated due to prolonged delivery times caused by supply shocks. This phenomenon was evident in the euro zone’s headline PMI reading. Conversely, many Asian economies saw their PMI figures decline, reflecting the adverse effects of rising fuel costs and growing uncertainty stemming from the Iran conflict.
On Wednesday, the S&P Global euro zone Manufacturing PMI rose to 51.6 in March from 50.8 in February, surpassing the preliminary estimate of 51.4. Normally, a reading above 50 signals growth in manufacturing activity. Mariana Monteiro of JP Morgan highlighted that despite the apparent increase in the headline index amid renewed energy shocks, the overall figure conceals significant variations between countries. Germany and Italy posted their strongest PMI readings in 46 and 37 months respectively, while Spain remained in contraction. Greece led with the highest PMI, followed by Ireland, whereas France’s manufacturing sector showed stagnation.
In the UK, now outside the European Union, manufacturers faced soaring cost pressures and the longest delivery delays since mid-2022, largely due to ships circumventing the Strait of Hormuz.
Meanwhile, the situation in Asia underscores the challenges for policymakers in a region that imports roughly 80% of its oil via the Strait of Hormuz, making it highly susceptible to energy shocks caused by the conflict. For instance, diesel prices in Manila have tripled, and Vietnam faces looming jet-fuel shortages. South Korea’s major cosmetics companies are also struggling to source plastic resin amid supply constraints.
China’s manufacturing sector expanded for the fourth consecutive month in March, though at a slower pace amid rising inflationary pressures and supply chain difficulties. The RatingDog China General Manufacturing PMI dropped to 50.8 from 52.1, falling short of the anticipated 51.6. Other Asian economies, including Indonesia, Vietnam, Taiwan, and the Philippines, also experienced slowed manufacturing activity, highlighting the widespread impact of the Middle East conflict on regional businesses.
Japanese factories were similarly affected by deteriorating business sentiment and escalating cost pressures, with input prices rising at the fastest rate since August 2024. The final S&P Global Japan Manufacturing PMI declined to 51.6 in March from 53.0 in February. In contrast, South Korea stood out as an exception, with factory activity expanding at its strongest pace in over four years, driven by robust semiconductor demand and new product launches.
