War revives stagflation dangers for global economy

(Bloomberg) — The cumulative global impact of seven weeks of war in the Middle East will begin to emerge in the coming week, in a second round of business surveys from multiple countries.

Whether the twin blows affecting growth and inflation seen in purchasing manager indexes after the first month of the Iran conflict intensified during month two will be a key focus.

The initial take for April in economies from Australia to the US will be published on Thursday. Among those covered by Bloomberg forecasts, indexes in Germany, France, the euro zone and the UK are all anticipated to show broad deterioration, while the American indicators are seen little changed.

Ultimately, the numbers may point to the degree that stagflation is lurking. That ominous term — evoking the noxious mix of surging prices and stalling growth of the 1970s — was cited by Chris Williamson, chief business economist at PMI-compiler S&P Global, when summing up risks highlighted by the overall global measure in March.

The survey numbers follow a week of bleak stock-taking in Washington, where finance chiefs were warned by the International Monetary Fund of a range of potential outcomes that included a near-recession for the world. Notwithstanding the current Middle East ceasefire, the damage to growth and inflation can’t be easily undone.

“Even if the war ends tomorrow, it would take quite some time for the recovery to kick in,” IMF Managing Director Kristalina Georgieva told Bloomberg Television. “The impact is already baked in.”

For all the gloom, multiple policymakers remain cautious about how to respond. European Central Bank chief economist Philip Lane described how he and his colleagues may treat reports such as the PMIs when they set interest rates later this month.

“We will have a rich set of survey data,” Lane said in Washington. “Of course, the people who are answering those surveys are looking at the same world we are looking at.” And for now, not many will have a decisive idea about what’s going to happen, he added.

ECB officials will also get French business confidence on Thursday and Germany’s closely watched Ifo business climate gauge on Friday. Their Federal Reserve peers will see the University of Michigan’s sentiment index, also at the end of the week.

But as Georgieva warned, even the most holistic analysis of the global economy by policymakers has its limits for now. “We all need to learn to operate in an environment of high and permanent uncertainty,” she said.

What Bloomberg Economics Says...

“While a deal appears to be in sight that may bring an end to the current round of US-Iran hostilities and relief to energy markets, it’s unlikely to result in a full or lasting peace. Israel does not appear party to negotiations, and continues to regard Iran as a threat. Trust between the US and Iran remains low and already there appears to be different interpretations of key terms (e.g., Hormuz), all pointing to enduring tensions.”

—Jennifer Welch and Adam Farrar.

Elsewhere, a possible war-driven pickup in inflation numbers from Canada to the UK to South Africa, plus interest-rate decisions from Turkey to Indonesia, may be among the highlights.

US and Canada

The week’s marquee US economic data release will be retail sales. Economists project a sizable jump in overall sales for March, largely due to sharply increased spending on gasoline. The figures aren’t adjusted for price changes, and drivers experienced costlier fill-ups because of the Iran war.

Excluding gasoline and autos, however, economists anticipate Tuesday’s report will signal more tepid demand as high fuel costs prompted budget-constrained consumers to squeeze spending on other things. While the average price of gas has declined since earlier this month, it remains around $4 a gallon.

S&P Global’s preliminary April PMIs come on Thursday, followed a day later by the University of Michigan’s final consumer sentiment index for April. The preliminary reading set a record low.

Meanwhile, Kevin Warsh will appear before the Senate Banking committee on Tuesday in what may be the most anticipated confirmation hearing for a Fed chair nominee in decades. Investors will listen closely for how Warsh conceives of monetary policy that hews to President Donald Trump’s demands for lower interest rates while not alarming traders still wary of inflation, especially amid a war-driven oil price shock.

Looking north, economists expect Canada’s headline inflation to have jumped to 2.6% in March from 1.8%, driven by gas prices. Still, food inflation — a persistent pressure point for Canadians — is projected to ease slightly as a base-year distortion from last year’s sales tax holiday rolls out of the data.

The Bank of Canada’s business outlook and consumer expectations surveys for the first quarter will offer important insight into how firms and households see the oil price shock shaping investment, labor markets, and inflation dynamics.

Asia

Inflation risks tied to the global energy shock will dominate Asia’s economic calendar in the coming week, with price data and business surveys set to test how quickly higher costs are feeding through.

China’s loan prime rate decision on Monday is expected to deliver no change, as policymakers balance support for growth against currency pressures.

Trade data from New Zealand, Japan, Thailand and Malaysia over the week will offer an early read on external demand. India’s infrastructure output is also due.

Focus turns Tuesday to New Zealand’s first-quarter inflation print, a key input for the central bank’s policy outlook.

Indonesia’s rate decision on Wednesday is expected to see policymakers stand pat as they weigh currency stability against rising imported inflation.

Thursday brings the week’s heaviest data flow. PMI readings from Australia, Japan and India will provide a timely read on business conditions, while inflation data from Singapore, Hong Kong and Japan will offer early evidence of the pass-through from higher energy prices.

The Philippines central bank is expected to raise its benchmark rate by 25 basis points to 4.5%, underscoring a tightening bias in parts of the region. South Korea’s consumer confidence reading will also be closely watched for signs of strain on households.

Japan’s department store sales and leading indicators round out the week, offering a gauge of the resilience of domestic demand and the near-term outlook.

Europe, Middle East, Africa

A slew of UK numbers will offer a glimpse of the health of the economy at a time when Prime Minister Keir Starmer remains mired in crisis. Data on Tuesday may reveal weakening pay pressures in the three months through February, just before the war broke out.

Inflation the following day is predicted to have jumped to 3.3% in March from 3%, as the Iran conflict drove up energy prices.

In the euro zone, ECB President Christine Lagarde is among speakers on the schedule before a pre-decision quiet period kicks in. Belgium, which was just cut by Moody’s Ratings, could face another downgrade on Friday after a review by S&P Global Ratings.

It will be a big week for the Swiss National Bank with two appearances by officials early before first-quarter results drop on Thursday. The central bank’s annual general meeting takes place the following day, led by President Martin Schlegel.

In South Africa, Reserve Bank Governor Lesetja Kganyago will speak at the release of the Monetary Policy Review on Tuesday and at a roadshow on Wednesday, as policymakers assess the inflationary fallout from the Iran conflict.

Surging oil prices driven by the war are expected to add to price pressures, with the first inflation reading since the conflict, due Wednesday, seen quickening slightly to 3.1% from 3% in February.

Turning to monetary decisions, most analysts surveyed by Bloomberg forecast that Turkey’s central bank will hold its main rate at 37% for a second straight meeting on Wednesday.

That would further pause easing as higher energy prices caused by the Iran war add to inflationary pressures. Three out of 11 economists surveyed say the bank will reverse course, however, raising rates by 300 basis points.

And in Russia, central bank policymakers on Friday will weigh whether to continue easing amid heightened uncertainty over potential inflation risks.

Latin America

Two of the region’s smaller inflation-targeting central banks hold monetary policy meetings in the coming week.

Banco Central del Uruguay has lowered borrowing costs at seven straight meetings, taking its key rate down to the current 5.75%.

Inflation has come in below target for eight consecutive months, hitting a near seven-decade low of 2.94% in March.

Paraguay’s central bank kept its key rate unchanged at 5.5% in March after consecutive quarter-point cuts. Since then, the March inflation report showed that the annual print had slowed to 1.9% from 2.3% in February.

Colombian GDP-proxy data for February may show a modest rebound from January, though analysts have been marking down 2026 growth forecasts. The consensus looks for a 2.6% expansion, in line with last year.

Substantial inflationary pressures, pre-dating the outbreak of war in the Middle East, will see the central bank continue to tighten, posing additional headwinds to growth.

In Argentina, GDP-proxy data will again likely highlight uneven growth dogging South America’s No. 2 economy — the energy and mining industries thriving, while construction and manufacturing sputter — that has analysts marking down their 2026 GDP forecasts. Consumer confidence and trade figures are also on tap.

Once the dust settles at the end of the coming week, Mexico watchers will be far better positioned to evaluate the wisdom of Banxico’s quarter-point rate cut last month.

Economic activity data for February may do little to dispel revived recession concerns — headwinds include weaker US growth along with trade and tariff uncertainty — while the early April consumer price figures may test the view that elevated inflation is supply-driven and temporary.

—With assistance from Swati Pandey, Laura Dhillon Kane, Vince Golle, Monique Vanek, Robert Jameson, Mark Evans, Piotr Skolimowski, Paul Wallace, Francine Lacqua and Tony Halpin.