Recent manufacturing surveys released on Monday indicate that European industry faced pressure last month due to the economic fallout from the Iran conflict, with weakening product demand and raw material costs surging at the fastest pace in four years. In contrast, factories in the United States and several Asian nations expanded production and sales, benefiting from corporate stockpiling activities, as geopolitical tensions continue to tighten global supply chains.

The conflict, which escalated in late February under U.S. and Israeli leadership, has disrupted global trade flows and unsettled financial markets. There is widespread market concern over potential disruptions to energy and commodity supplies, with the Strait of Hormuz—a critical chokepoint for oil and gas transport—becoming a focal point of risk.

Leaders from four major international institutions—the International Energy Agency, the International Monetary Fund, the World Bank, and the World Trade Organization—have previously issued a joint warning that hostilities involving Iran are intensifying global energy supply constraints.

Data from S&P Global shows the Eurozone Manufacturing Purchasing Managers' Index (PMI) for May fell to 51.6 from April's near four-year high of 52.2, though it remained above the preliminary estimate of 51.4. A PMI reading above the 50 threshold indicates industry expansion.

Chris Williamson, Chief Business Economist at S&P Global, noted, "Although Eurozone manufacturing expanded for a fourth consecutive month in May, the conflict in the Middle East is driving up input prices and disrupting supply chains, with headwinds to the sector's growth becoming increasingly apparent."

Manufacturing growth in Germany, Europe's largest economy, has stalled, while French manufacturing entered contraction for the first time since November of last year.

A Reuters survey of economists in May revealed that a majority of respondents expect the European Central Bank to raise its deposit rate this month, with at least one more hike anticipated within the year, aiming to prevent energy-driven price increases from feeding into core inflation.

Official inflation data scheduled for release on Tuesday is expected to show that Eurozone inflation further exceeded the ECB's 2% target last month.

Driven by significantly higher costs, UK factories raised their output prices at the fastest rate since June 2022 last month.

U.S. and Asian Manufacturing Counter Shocks with Stockpiling

In contrast, manufacturing activity in the United States and most Asian economies continued to improve.

Anticipating price hikes and potential shortages due to the geopolitical conflict, U.S. businesses placed advance orders and increased inventories, driving domestic industrial output to a four-year high.

The Institute for Supply Management (ISM) Manufacturing PMI for the U.S. rose to 54.0 in May from 52.7 in April, marking its highest level since May 2022. New orders reached a four-month high, companies accelerated inventory replenishment, supplier delivery times extended to their longest in four years, and production input costs remained elevated.