Eurozone PMI Falls to 10-Month Low, Iran War Triggers Stagflation Alert, ECB in Dilemma

The ongoing Middle East conflict continues to escalate, and signs of economic pressure in the Eurozone are becoming increasingly evident. S&P Global announced on Tuesday that the March Eurozone Composite Purchasing Managers’ Index (PMI) preliminary reading fell to 50.5, a significant drop from 51.9 in February, hitting a 10-month low and below the 51.0 forecasted by economists surveyed by Reuters.

Corporate costs hit a three-year high, supply chain disruptions worsen

S&P Global Chief Business Economist Chris Williamson stated that this PMI data “sounds the alarm for stagflation.” The Iran war has driven up energy prices and disrupted supply chains, leading to the fastest increase in corporate costs in over three years. Supplier delivery delays have risen to the highest level since mid-2022, mainly due to shipping disruptions. Eurozone companies also slightly reduced hiring in March, and management’s outlook for full-year output is more pessimistic than in February.

According to the PMI survey’s price indicator, inflation may accelerate toward 3%. Williamson warned, “Cost pressures could further push up prices in the coming months,” and the European Central Bank (ECB) is “no longer in a favorable position.”

ECB’s latest forecast: growth only 0.9% in 2026, inflation reaches 2.6%

The ECB’s latest forecast released last week shows that the Eurozone economy will grow only 0.9% in 2026, with overall inflation averaging 2.6%. Inflation is expected to surge to 3.1% in Q2 due to energy shocks. However, many analysts believe this forecast may still be overly optimistic, with the duration of the Middle East conflict being the biggest uncertainty.

JPMorgan economist Raphael Brun-Aguerre pointed out that energy price shocks have damaged corporate profitability and affected overall demand and output, “Business confidence has been severely impacted.” The European Commission’s consumer confidence data released last week also showed a significant decline in March.

Von der Leyen: Energy crisis has reached “emergency level,” calls for immediate negotiations

European Commission President Ursula von der Leyen said Tuesday morning that, given the “emergency” of the global energy crisis, it is time to start negotiations with Iran. She emphasized that the impact of rising oil and gas prices is felt worldwide, but the solution must come through negotiations to end hostilities in the Middle East.

Stagflation is seen as the “worst-case scenario” for the economy, putting central banks in a dilemma—raising interest rates can curb inflation but also suppress already weak growth; lowering rates can boost the economy but may further fuel inflation. The Eurozone is currently at this crossroads, and the duration of the Middle East situation will determine whether Europe can escape this predicament.

This article, “Eurozone PMI Falls to 10-Month Low, Iran War Sparks Stagflation Alarm, ECB Faces Dilemma,” was first published on Chain News ABMedia.