Iran's War Revives Inflationary Recession Risks for the Global Economy

SadaNews - The repercussions of seven weeks of the Iran war are beginning to appear in the global economic data, in a second round of business surveys across several countries.

The main focus will be on whether the dual shocks affecting growth and inflation, which appeared in the Purchasing Managers' Index after the first month of the Iran war, have intensified during the second month.

Purchasing Managers' Indexes Reveal Widespread Deterioration in Europe

The preliminary reading for April in economies ranging from Australia to the United States will be released on Thursday. Among the countries included in Bloomberg's forecasts, the indicators in Germany, France, the Eurozone, and the UK are expected to show widespread deterioration, while U.S. indicators are likely to remain largely unchanged.

Rising Prices Amid Slowing Economic Growth

Ultimately, the numbers may indicate how close we are to an inflationary recession. This grim term - evoking the toxic mix of rising prices and slowing growth from the 1970s - was mentioned by Chris Williamson, chief business economist at S&P Global, as he summarized the risks highlighted by the overall global index in March.

The survey data comes after a week of grim assessments in Washington, where the International Monetary Fund warned finance ministers of a range of potential scenarios, including the global economy nearing recession. Despite the current ceasefire in the Middle East, the damage to growth and inflation may not be easily reversible.

IMF Managing Director Kristalina Georgieva stated in an interview with Bloomberg TV: "Even if the war ends tomorrow, it will take a long time for recovery to begin. The impact may have already entrenched itself."

Global Uncertainty

Despite this pessimism, many monetary policymakers remain cautious about how to respond. The European Central Bank's chief economist, Philip Lane, described how he and his colleagues might deal with reports like the Purchasing Managers' Index when determining interest rates later this month, saying: "We will have a rich set of survey data. And of course, those responding to these surveys are looking at the same world we are." He added that at present, many do not have a clear sense of what will happen.

ECB officials will also receive business confidence data from France on Thursday, and the "Ifo" business climate index from Germany on Friday. Their counterparts at the Federal Reserve will be monitoring the University of Michigan Consumer Confidence Index at the end of the week.

But as Georgieva warned, the more comprehensive analyses of the global economy available to policymakers have their limits for now. She stated: "We all have to learn to operate in an environment of heightened and persistent uncertainty."

Bloomberg Economics Experts' Opinion:

"While it appears that there is a deal on the horizon that may end the current round of hostilities between the United States and Iran and provide relief to energy markets, it is unlikely to lead to a complete or lasting peace. Israel does not seem to be a party to the negotiations and still views Iran as a threat. Trust between the U.S. and Iran remains low, and there are already differing interpretations of some key provisions (such as the Strait of Hormuz), suggesting that tensions will persist."

- Jennifer Welch and Adam Farrar

On another note, one of the anticipated highlights may be a potential acceleration in inflation rates driven by the war in Canada, the UK, and South Africa, along with interest rate decisions in Turkey and Indonesia.