An employee of German steel manufacturer Salzgitter AG stands in front of a furnace at a factory in Salzgitter, Germany, on March 1, 2018.
Fabian Bimmer | Reuters
Eurozone private sector output fell to a 10-month low in March amid mounting evidence of the impact of the Iran conflict on the global economy.
The closely watched S&P Global Purchasing Managers’ Index (PMI) for the euro area fell to 50.5 in March, a significant drop from 51.9 in February.
Economists polled by Reuters had expected the rate of decline to 51.0 to be gradual. A threshold of 50.0 separates the enlarged and reduced regions.
The report sparked fresh warnings that the region faces fears of impending stagflation, a toxic combination of high inflation, unemployment and stalled growth.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement on Tuesday: “Eurozone PMI preliminary readings are sounding the alarm on stagflation as wars in the Middle East are causing prices to soar while suppressing growth.”
“Costs for businesses are rising at the fastest pace in more than three years due to the impact of soaring energy prices and supply chain blockages due to the war. Supplier delays have jumped to the highest since mid-2022, and this is mainly related to transportation issues.”
Eurozone companies surveyed by S&P Global cut back on hiring slightly during March as bosses lowered their production forecasts for this year compared to their February forecasts, S&P Global economists said.
‘Stagflation’ is often considered a ‘worst case scenario’ for the economy and poses a dilemma for central banks. This is because the tools that central banks typically use to combat high inflation, namely raising interest rates, can suppress growth and employment, while lowering interest rates can spur growth but increase demand and inflation.
The eurozone is not alone in seeing private sector activity slow as a result of the Iran war, with India’s PMI figures released early Tuesday showing output growth slowing to its lowest level since October 2022.
‘Significant’ energy shortage
The current turmoil in the Middle East has rendered traditional growth and inflation forecasts largely unnecessary, leaving businesses and policymakers struggling to gauge the direction of input costs and inflation without knowing how long the conflict will last.
In revised forecasts released last week, the European Central Bank now expects economic growth to grow by 0.9% in 2026 and headline inflation to average 2.6% this year.
However, S&P Global’s Williamson said the outlook could be optimistic, with price indicators from the PMI survey showing inflation accelerating by nearly 3% and “cost pressures likely to further add to sales price inflation in the coming months.”
“While the outlook depends on the duration of the war and its potential lasting impact on energy and supply chains, these preliminary PMI figures highlight that the European Central Bank is no longer in a ‘good position’ on growth and inflation,” Williamson said.
JPMorgan’s Raphael Blanc-Aguerre said on Tuesday that March’s PMIs showed the Iran conflict was already having a significant impact on the euro zone economy.
“Overall, this shows that a large short-term inflationary impact from high energy prices can impact core prices,” he said in an emailed analysis. “Business sentiment has been hit hard. European Commission data (released on Monday) already shows a big hit to consumer confidence in March,” he said in an emailed analysis.
A tanker carrying Iraqi fuel oil was damaged in an unknown attack targeting two foreign tankers near Basra, Iraq, on March 12, 2026, according to Iraqi port officials.
Mohamed Ati | Reuters
Early on Tuesday, European Commission President Ursula von der Leyen said that given the “serious” nature of the global energy crisis, the time had come to negotiate with Iran.
“This situation is critical for our energy supply allies around the world. We are all feeling the ramifications for gas and oil prices, our businesses, and our societies, but it is paramount that we reach a negotiated solution that will end the hostilities we see in the Middle East.”
