Middle East Conflict Halts Manufacturing Growth Across Global Economies

Manufacturing activity in China slowed significantly in July due to weaker demand and elevated costs resulting from the ongoing war in the Middle East. The conflict has disrupted shipping through the Strait of Hormuz, a key transit route for energy exports, causing energy prices to soar.

According to surveys released on August 3, factories in China saw growth in new orders slow to its weakest pace since January. Although euro zone output surged, it was largely driven by firms clearing order backlogs rather than rising demand.

The S&P Global Eurozone Manufacturing PMI rose to 51.9 in July from June's 51.4, its highest reading since April but just below a preliminary estimate of 52.0. Carsten Brzeski at ING stated, 'It's a mixed bag, but with the main conclusion the euro zone economy is more resilient than feared... but we're clearly heading into at least a low growth environment.'

Inflation in the common currency bloc rose to 2.9 per cent in July from 2.8 per cent a month earlier, adding to an already strong case for another European Central Bank interest rate hike.