Middle East Conflict Squeezes Global Manufacturing Amid Weaker Demand and Higher Costs

The ongoing war in the Middle East has had far-reaching consequences for global manufacturing, causing weaker demand and higher costs for factories. According to recent surveys, China's manufacturing activity slowed in July as the conflict disrupted shipping through the Strait of Hormuz, a key transit route for the Gulf's energy exports.

As a result, factories in the world's second-largest economy saw growth in new orders slow to its weakest pace since January. In contrast, the euro zone saw output surge in July, but this 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. This indicates growth, but Carsten Brzeski at ING warns that the euro zone economy is heading into a low growth environment.

Inflation in the common currency bloc rose to 2.9% in July from 2.8% a month earlier, adding to the case for another European Central Bank interest rate hike, which would likely further constrain demand as households curtail spending.