War in Middle East hits Eurozone economy - PMI

24th Mar 2026 11:40

(Sharecast News) - Eurozone private sector output slowed sharply in March, a closely-watched survey showed on Tuesday, as cost inflation soared and confidence waned following the outbreak of war in the Middle East.

The flash S&P Global Eurozone PMI composite output index fell from 51.9 in January to 50.5, a ten-month low. Analysts had been expecting a more modest decline, to 51.

Respondents pointed to a reduction in new orders alongside a sharply accelerating rate of input cost inflation. The conflict between US-Israel and Iran has also caused disruption to supply chains, including lengthening delivery times.

The biggest weakness was seen in the services sector, with the PMI business activity index sliding to 50.1 from 51.9.

In contrast, the manufacturing output index shed just 0.2 points to 51.7, while the manufacturing PMI jumped to 51.4 from 50.8, a 45-month high, after a strong performance from Germany's industrial sector helped offset weakness elsewhere. However, the flash PMI composite in Germany, the bloc's biggest economy, still fell, down 1.3 points at 51.9.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the Eurozone data were "ringing stagflation alarm bells" as the conflict drove up prices while stifling growth.

He continued: "Firms' costs are rising at the fastest rate for over three years amid the surge in energy prices and choking of supply chains resulting from the war.

"Supplier delays have jumped to their highest since mid-2022, largely linked to shipping issues."

The flash data also showed a pronounced slide in confidence, to the lowest for nearly a year. The monthly drop in sentiment was the largest since Russia invaded Ukraine in February 2022.

Williamson said: "The outlook depends on the duration of the war and any potential lasting impact on energy and supply chains, but the flash PMI data underscore how the European Central Bank is no longer in a good place with respect to growth and inflation, and will have to tread a cautious path."

Bert Colijn, chief economist, Netherlands, at ING, said: "Ahead of the Middle East conflict, optimism among European businesses was strong. But war has put paid to hopes of short-term growth acceleration.

"The Eurozone's vulnerabilities are once again laid bare. For energy-intensive industry, this means that a recovery will be harder to achieve, which matters significantly for overall production. And consumers are less confident, with prices at the pump having jumped, which means that household consumption could be under pressure despite decent wage growth.

"For the Eurozone economy, a return to strength depends very much on the length of the Middle East conflict."

A PMI reading above the neutral 50.0 benchmark indicates growth, while one below it suggestions contraction.