By Paul Hannon and Fabiana Negrin Ochoa
Business activity in the U.S. grew at a steady pace in May while slowing in Europe and Asia as energy costs have risen, an indication that the global economy has been weakened by the fallout from the conflict in the Middle East.
The war has led to a sharp decline in shipments through the Strait of Hormuz, through which a fifth of the world's oil and natural gas supplies usually transit. As a result of reduced supplies, energy prices have jumped around the world.
Responding to the conflict, economists have lowered their forecasts for global growth this year, with the United Nations now projecting the weakest expansion since the Covid-19 pandemic, or setting that unusual year aside, the weakest since the global financial crisis.
The surveys suggest that the anticipated slowdown is underway, although the U.S. appears to have been less negatively affected than Europe and Asia.
S&P said its Purchasing Managers Index for the U.S.--which measures activity in the services and manufacturing sectors--was unchanged at 51.7 in May. A reading below 50.0 points to a contraction, while a reading above that threshold points to an increase in activity.
However, that resilience appeared to reflect a boost to manufacturing from businesses bringing forward purchases in an effort to avoid even higher prices in the future, or difficulties in securing needed products.
"A boost from precautionary stock building due to concerns over further price hikes and supply delays will not last forever," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
By contrast with the U.S., the PMI for the eurozone fell to 47.5 in May from 48.8 in April.
That marked the sharpest decline in total activity since October 2023. S&P estimated that the PMI measures for April and May point to a 0.2% decline in eurozone gross domestic product in the second quarter, following a small increase in the first three months of the year.
In the U.K., the sharpest drop in services since January 2021 led to a decline in overall activity. The U.K. economy recorded a stronger start to the year than most of its peers, but the surveys suggest that momentum has faded fast.
Of the countries surveyed, France was hardest hit, with its national PMI pointing to the largest drop in activity since late 2020, when the global economy was in the throes of the Covid-19 pandemic.
Activity also fell in Germany for a second straight month, although to a more modest extent.
Australia saw a swing to contraction, while new orders declined at the fastest pace in over four-and-a-half years. Indeed, new orders cooled in most of the surveyed economies, suggesting the slowdown in activity is set to continue over coming months.
While the conflict appears to be slowing economic growth, it is also reigniting global inflation, which had been falling back from the surge that followed Russia's invasion of Ukraine in 2022.
In the U.S., businesses reported that their costs rose at the fastest pace since November 2022, while the prices they charge in turn rose at the fastest pace since August 2022.
In the eurozone, prices charged rose at the most rapid clip in 38 months. Based on historic patterns, S&P estimates that those increases point to consumer-price inflation of around 4% over coming months, double the European Central Bank's target.
Japanese companies raised selling prices again in May in response to climbing expenses, the S&P data showed. Notably, the rate of charge inflation--which captures the pace at which businesses are raising sale prices--across both goods and services was the sharpest in nearly 19 years, though the pace still lags behind the increase in input costs.
That combination of weakening activity and rising inflation presents central banks with some difficult choices, as any steps they take to contain inflation would likely exacerbate the economic slowdown and the accompanying job losses.
The surveys pointed to declines in payrolls in the U.S., France, Germany, the U.K. and Australia, although businesses in Japan and India continued to hire additional workers.
"Job losses are also starting to become worryingly widespread as business confidence in any swift turnaround in the adverse economic climate fades further," said Williamson.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
05-21-26 1039ET
