Global business growth grinds to a halt in May amid West Asia conflict; Europe hit hardest: S&P Global Flash PMI
New Delhi, May 25
Global business growth grinds to a halt in May as the conflict in West Asia exerted a growing toll on major economies, according to Flash PMI surveys from S&P Global.
The report mentioned that Europe is faced with the most severe impact, with the economies of both the United Kingdom and the eurozone slipping into decline, while expansions in the United States and Japan shifted into lower gears.
The report noted that major economies faced stagflationary conditions, creating a significant challenge for central bank policymakers.
"Services have generally reported the worst deterioration in demand, whereas manufacturers have continued to benefit in May from stockpiling....Manufacturing input price inflation accelerated sharply among the major economies to reach a four-year high, with energy prices also pushing up service inflation," the report said.
The report highlighted that inflation updates for many of the world's largest economies will be in the spotlight in the coming week as policymakers and markets assess the likely next moves in interest rates.
After the US consumer price index showed the annual rate of inflation rising to 3.8 per cent in April, its highest since May 2023, the coming week's updated core PCE inflation measure, which is widely touted as the Fed's preferred gauge, will be eagerly awaited.
"Kevin Warsh has taken over as Chair of the US Fed's rate setting committee as inflation indicators are flashing red," the report added.
As per S&P Global, the CPI index previously rose at a 3.2 per cent annual rate in March, up 0.3 per cent from the prior month. The report observed that any large uplift would add to market speculation that rates remained on hold for the rest of the year, or that the next move could even be a hike.
"S&P Global's flash US PMI survey hinted at yet another rise in price pressure in May as the war triggered more cost growth among businesses," the report stated.
With the flash US PMI signaling only modest output growth, the Fed monitored the resilience of the economy amid the conflict. This focus elevated the importance of upcoming US trade data, durable goods orders, and regional survey activity measures from the Chicago, Richmond, and Dallas Feds.
At the same time, the European Central Bank evaluated regional inflation trends through consumer price indices from Germany, France, and Italy, alongside producer price data from Italy, France, and Spain.
"The flash eurozone PMI survey data showed price growth accelerating due to a growing supply shock to the region, but also indicated that the economy has now fallen into a deepening downturn, complicating the policy stance," the report said.
Similar pressures emerged in Australia, where the reserve bank previously hiked its policy rate at its last three consecutive meetings. The RBA's May meeting concluded with warnings that more rate hikes were likely needed. "However, with PMI data hinting at growing downturn risks for the economy, it will be interesting to see if policymakers move more cautiously," the report added.
The week also featured first-quarter GDP updates for the US, Canada, Brazil, Italy, and Singapore. S&P Global qualified these releases, noting, "in all cases these data are capturing conditions prior to the impact of the war in the Middle East, so hold few signals for the economic outlook."
The report stated that strong first quarters remained important in helping position economies to weather the conflict.
— ANI
Reader Comments
The war in West Asia is really taking a toll on everyone. And here we are, dependent on Middle Eastern oil for so much of our energy needs. 🙏 Just pray this doesn't lead to another round of inflation in India. Petrol-diesel prices might go up again if crude keeps rising.
Honestly, this is what happens when global supply chains are too concentrated. Europe is getting hit because they rely so much on energy imports, and the US is not far behind. India needs to double down on self-reliance – diversify our trade partners, invest in renewable energy, and strengthen domestic manufacturing. We cannot afford to be this vulnerable.
The comment about the Fed chair being replaced sent shivers down my spine. Kevin Warsh is known to be hawkish. If US raises rates further, that could trigger capital outflows from emerging markets like India, putting pressure on the rupee. Not a good time for anyone.
One thing that stands out to me is the discrepancy between manufacturing and services. Manufacturing is getting some boost from stockpiling! 😂 But that's temporary. Ultimately, if demand dries up, even that will collapse. The reality is that West Asia conflict is creating a perfect storm – supply chains disrupted, energy costs high, inflation stubborn. And we haven't even seen the full impact yet.
The report mentions strong first quarters could help economies weather the conflict. India's Q1 growth was actually decent, but we are not immune. My concern is for the common man – if global slowdown leads to job losses in IT and services, that hits middle-class families hard. And if inflation stays high
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.