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The Iran War and Its Impact on Global Growth and Inflation

From late February to early March 2026, the United States and Israel launched military actions against Iran, triggering a conflict that swiftly reverberated across the global economy. The escalation placed additional strain on an already tight energy market. The Strait of Hormuz, a critical oil transit chokepoint, was effectively closed for a period, pushing Brent crude prices from around USD 70 to above USD 80 per barrel, with an intraday high of approximately USD 82 per barrel as of March 3. The sharp rise in oil prices intensified global inflationary pressures, particularly for economies heavily dependent on energy imports, as production and transportation costs increased. Meanwhile, volatility in equity and foreign exchange markets widened, prompting capital flows into safe-haven assets such as the U.S. dollar and gold. Aviation, tourism, and consumer-related sectors came under pressure, adding further uncertainty to the global economic recovery outlook. The economic impact of the conflict can be explained through three primary transmission mechanisms. First, the Middle East serves as a central hub for global energy supply, with roughly one-fifth of the world’s crude oil and liquefied natural gas shipments passing through the Strait of Hormuz. Any disruption to this route directly increases risk premiums in the energy market. According to Goldman Sachs, if the disruption were to last more than four weeks, oil prices could reflect an additional risk premium of approximately USD 14 per barrel. Second, rising energy prices transmit through the economy via cost pass-through effects, affecting manufacturing, transportation, and food production, thereby pushing up end-consumer prices and compressing corporate margins. The European Central Bank has warned that a prolonged conflict could exacerbate inflationary pressures and suppress output. Third, heightened geopolitical uncertainty has triggered a reallocation of global capital flows. Emerging market currencies and equities have weakened, while demand for the U.S. dollar and U.S. Treasuries has increased, tightening global financial conditions and amplifying market volatility. In the short term, if tensions de-escalate quickly and normal navigation through the Strait of Hormuz resumes, oil prices and financial market pressures may partially ease, allowing inflationary and supply chain risks to gradually subside. However, if the conflict expands to include broader energy infrastructure or additional maritime routes, upward pressure on energy prices could persist over the medium to long term, posing a deeper drag on global economic growth. Analytical institutions estimate that a sustained USD 10 increase in oil prices could reduce global GDP growth by approximately 0.1 to 0.2 percentage points, with emerging markets facing more pronounced impacts. Under such circumstances, central banks may reassess their monetary policy stance in response to inflation risks, while corporations and investors adopt a more cautious approach to risk allocation. Over the coming weeks to months, the trajectory of geopolitical developments and the balance of energy supply and demand will remain key determinants of the global economic outlook. Read More at Datatrack

U.S. Tariff Dynamics: Impacts After Court Decision

The U.S. tariff policy has recently undergone significant changes. On February 20, the Supreme Court ruled that the broad reciprocal tariffs implemented by former President Trump under the International Emergency Economic Powers Act (IEEPA) were invalid. This reduced the average effective tariff rate from the previously estimated 16.9% to 9.1%, still the highest level since 1946 (excluding 2025), but about one-third lower than the 2025 peak. As a result, short-term price levels increased by 0.6%, equivalent to an average household loss of around $800 (in 2025 dollars), with low-income households losing about $400. By the end of 2026, the unemployment rate is expected to rise by 0.3 percentage points, translating to a loss of approximately 550,000 jobs. In 2025, the trade deficit fell by only 0.2% compared with 2024, while the goods trade deficit grew by 2% year-on-year, indicating that tariffs had limited effect in reducing the deficit. These changes were primarily driven by the repeal of IEEPA tariffs, which significantly lowered rates for countries such as China, Canada, and Mexico—for example, China’s import tariff fell by nearly two-thirds. This prompted companies to apply for $142 billion in tariff refunds paid in 2025, providing short-term fiscal support. The Trump administration subsequently announced a 10% basic import tariff on global imports, later raised to 15%, while maintaining 25% national security tariffs under Section 232 on steel, aluminum, automobiles, and electronics to fill the policy gap and strengthen industrial protection. European firms expect the tariff impact to be even more pronounced in 2026, reflecting pressures from global supply chain restructuring. Overall, the combination of legal rulings and policy adjustments has reshaped the tariff structure, affecting import substitution and export competitiveness. Looking ahead, the tariff rate is expected to remain around 9.1% in the short term, with refund procedures supporting GDP growth in 2026. However, in the long term, the economy could shrink by 0.1% annually (about $300 billion per year), with manufacturing output slightly increasing by 1.2%, while agriculture and construction face pressure of about 2.4%. In the medium term, the government may invoke Section 122 or Section 232 to expand investigations, potentially raising tariffs to 15–24.1%. Fiscal revenues from 2026 to 2035 are estimated at $1.2 trillion (dynamic estimate $1 trillion), though the risk of retaliatory tariffs is rising in parallel.

U.S. December 2025 Retail Sales Flat, Below Expectations

Data released by the U.S. Department of Commerce on February 10, 2026 showed that retail sales in December 2025 totaled USD 735.0 billion, flat from November (0% MoM), falling short of market expectations for a 0.4% increase and below November’s 0.6% gain. On a year-over-year basis, growth slowed to 2.4% from 3.3% in November, indicating that momentum faded toward the end of the holiday shopping season. This marked the first flat monthly reading since 2024 and suggests a cooling in consumer spending momentum. By category, weakness across several segments weighed on the overall performance: Motor vehicle and parts dealers reported a decline, as trade tensions dampened demand. Furniture stores fell 0.9% MoM, electronics and appliance stores declined 0.4%, and clothing stores dropped 0.7%. Sales at restaurants and bars also decreased, reflecting softer discretionary spending. Building materials and garden equipment rose 1.2%, while gasoline stations edged up 0.3%, providing partial support. Core retail sales, excluding autos, gasoline, building materials, and food services, declined 0.1% MoM. Overall, persistent inflationary pressures and a high interest rate environment continued to constrain consumption, while tariff-related uncertainties weighed on confidence. In summary, December retail sales unexpectedly stalled, with annual growth moderating to 2.4%, signaling more cautious consumer behavior amid elevated prices and policy uncertainty. In the near term (1–2 months), retail activity is likely to remain subdued, with monthly growth potentially limited to 0.2–0.4% amid a wait-and-see stance from the Federal Reserve and ongoing tariff concerns. Over the medium term, if the labor market remains resilient and inflation continues to ease, retail sales growth could recover to around 3% YoY within six months. However, escalating trade tensions remain a key downside risk. Read More at Datatrack

U.S. January ISM Services PMI Holds Steady in Expansion

The Institute for Supply Management (ISM) released its January Services Purchasing Managers’ Index (PMI) on February 4, 2026, reporting a reading of 53.8, unchanged from the previous month and slightly above the market expectation of 53.5. The index has remained in expansion territory for 19 consecutive months and has stayed at a relatively elevated level for the second straight month since October 2024. Remaining above the 50 expansion threshold, the Services PMI corresponds to an annualized contribution of approximately 1.8 percentage points to overall GDP growth, indicating that the U.S. services sector continues to underpin economic momentum. While new orders softened modestly, accelerating business activity and worsening supplier delivery delays point to resilient demand, with overall activity holding at high levels and showing no clear signs of deterioration. Sub-Index Performance: ● Business Activity Index rose to 57.4, up 2.2 percentage points from the prior month, marking the fastest growth in 19 months, driven primarily by data center investment and holiday-related consumption. ● New Orders Index declined 3.4 percentage points to 53.1, but remained in expansion for the eighth consecutive month, supported by fiscal budget updates and the resumption of projects, although customer outlooks have become more cautious. ● Employment Index edged down 1.4 percentage points to 50.3, staying in expansion for a second month. Hiring increased in the construction and healthcare sectors, while recruitment was constrained by budget freezes in certain states. ● Supplier Deliveries Index increased to 54.2, up 2.4 percentage points month over month, marking the 14th consecutive month of slower deliveries, mainly due to chip shortages and strong data center demand. ● Prices Index climbed to 66.6, up 1.5 percentage points from the prior month, extending its expansion streak to 104 months, driven by higher copper product and labor costs, although declines in diesel and gasoline prices provided some offset. ● Inventories Index fell sharply to 45.1, down 9.1 percentage points month over month, shifting into contraction, largely reflecting inventory adjustments following year-end mandatory receipts. ● Backlog of Orders Index stood at 44.0, remaining in contraction for the 11th consecutive month but improving slightly by 1.4 percentage points; meanwhile, the New Export Orders Index dropped sharply to 45.0, down 9.2 percentage points, amid tariff-related uncertainty. Overall, these developments reflect the combined impact of AI data center construction, concerns over tariff policy, and geopolitical tensions. Eleven industries reported growth, including healthcare, utilities, and retail, while five industries—such as transportation and wholesale trade—remained in contraction. The January ISM Services PMI continued to signal expansion, underscoring the resilience of the U.S. services sector. Despite rising price pressures and weak export orders, strong business activity continues to support economic growth. In the short term (1–2 months), the PMI is expected to remain above 53, supported by data center investment and a recovery in consumer demand, though tariff uncertainty may weigh on new orders. Over the medium term (within six months), services sector growth is likely to persist if the Federal Reserve maintains a relatively accommodative policy stance; however, risks from inflationary pressures and trade frictions warrant close monitoring. Read More at Datatrack

US ISM Manufacturing PMI January Data Shows Strong Rebound, Ending Contraction Streak

The Institute for Supply Management (ISM) reported that the U.S. manufacturing Purchasing Managers’ Index (PMI) rose to 52.6 in January, up sharply by 4.7 percentage points from the seasonally adjusted 47.9 in the prior month, ending a 12-month contraction and returning to expansion territory (above 50). Notably, the new orders index reached its highest level since August 2022, signaling a clear rebound in manufacturing demand. Overall performance exceeded market expectations and helped improve investor sentiment. The economy has now expanded for 15 consecutive months, with the PMI reading corresponding to an annualized real GDP growth rate of approximately 1.7%, a relatively high level in recent periods. Sub-index performance: New Orders Index rose to 57.1, up 9.7 percentage points month over month, ending contraction and marking the highest level since February 2022, reflecting post-holiday restocking demand. Production Index increased to 55.9, up 5.2 percentage points, remaining in expansion for the third consecutive month and reaching its highest level since February 2022, driven mainly by transportation equipment and machinery sectors. Employment Index stood at 48.1, still in contraction but improving by 3.3 percentage points from the prior month, marking the 28th consecutive month of decline as firms continued to reduce headcount or freeze hiring. Supplier Deliveries Index rose to 54.4, up 3.6 percentage points, indicating a second consecutive month of slower deliveries and reflecting rising demand pressures on supply chains. Inventories Index edged up to 47.6, an increase of 1.9 percentage points but still in contraction; meanwhile, Customer Inventories fell to 38.7, the lowest level since June 2022, which is supportive of future production. Prices Index increased slightly to 59.0, up 0.5 percentage points, extending gains for the 16th consecutive month, driven by higher steel and aluminum prices and tariff-related effects. The rebound was mainly supported by post-holiday order replenishment and customers pulling forward purchases to avoid potential tariff hikes. However, trade frictions and policy uncertainty remain key risks, prompting companies to continue shifting supply chains toward lower-tariff regions such as Mexico. Overall, the January ISM manufacturing PMI indicates a meaningful improvement in U.S. manufacturing conditions, with most sub-indices showing broad-based gains, reflecting recovering demand and production momentum. In the short term (1–2 months), expansion is expected to continue, supported by restocking and improving demand, although weak employment recovery and inventory adjustments may pose headwinds. Over the medium term (within six months), uncertainty surrounding tariff policies and persistent inflation could keep the PMI fluctuating around the 50 level. Investors should monitor recovery signals in cyclical sectors such as transportation and chemicals while avoiding excessive optimism toward the manufacturing outlook. Read More at Datatrack