Eurozone private sector growth almost stalled this month, a key survey showed on Tuesday, adding to evidence that the bloc is already feeling economic fallout from the U.S. and Israeli war with Iran, with inflation rising and growth slowing.
“The economic hit from higher energy prices could be felt very quickly,” Jack Allen-Reynolds at Capital Economics said. “Based on our working assumptions for energy prices, we suspect that the economy will stagnate rather than contract, but there are clearly risks in both directions.”
Interest rates are rising amid expectations of further European Central Bank rate increases to curb inflation, pushing some mortgage rates higher and denting disposable incomes.
Meanwhile, petrol prices have risen by more than 10% across the EU, while diesel is up over 20%. Even if the war ends relatively soon, prices are unlikely to fall quickly, as some energy infrastructure has been damaged and fuel bottlenecks may take several months to resolve.
The S&P Global flash eurozone Composite Purchasing Managers’ Index fell to a 10-month low of 50.5 in March, down from 51.9 in February, as the war drove input costs to their highest in more than three years and triggered the worst supply chain disruptions since mid-2022.
“The flash eurozone PMI is ringing stagflation alarm bells as the war in the Middle East drives prices sharply higher while stifling growth,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
The fall in the PMI comes as German figures held up relatively well, while other major economies took a bigger hit, including France, where business confidence tumbled.
Separate data released a day earlier showed consumer confidence in the bloc falling to its lowest level since late 2023, marking one of the steepest declines on record and dropping well below its long-term average as economic pressures weigh on households.
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