Economic growth: The longer the Iran war lasts, the bleaker the growth outlook
The war in Iran is increasingly leaving its mark on the global economic outlook. Consumer confidence is particularly affected, as it traditionally reacts very sensitively to rising oil prices. This development is especially delicate for the United States, because US economic growth has noticeably weakened recently and has also relied heavily on private consumption. On the corporate side, the effects of the conflict have so far been visible only to a limited extent in sentiment indicators from mid-March onwards. However, if the war continues, confidence there is likely to gradually decline as well.
Overall, these are not encouraging signals for global economic growth. The combination of unsettled consumers and a burden on the corporate sector that may not yet have been fully captured entails the risk of a broader slowdown in growth, particularly if the conflict in Iran persists for longer.
Inflation: More inflationary pressure due to rising oil prices – also over the medium term?
Inflation developments in the industrialised economies remain mixed. In Japan, in particular, a weaker increase in rice prices recently brought some relief. In the euro area, the United States and the United Kingdom, by contrast, core inflation at 2.4%, 2.5% and 3.2% respectively remains above the targets set by the central banks.
The war in Iran is likely to make this process even more difficult. Rising oil prices are expected to push headline inflation rates higher in the industrialised economies, most notably in the United Kingdom, which is heavily exposed to gas. In addition, so-called second-round effects – for example higher production costs along supply chains – carry the risk of putting pressure on the core rate over the medium term. However, when and to what extent these effects will materialise remains uncertain and will depend largely on how the conflict develops.
Monetary policy: The hoped-for interest rate cuts in the US will likely not materialise for the time being
In March, monetary policy meetings of the major central banks were marked by a high degree of uncertainty. Although the escalated conflict in Iran pushed oil prices up sharply, the scale and duration of the price pressure – and therefore the extent of the economic impact – remain difficult to gauge. Against this backdrop, the European Central Bank, the US Federal Reserve, the Bank of Japan and the Bank of England decided to leave their policy rates unchanged for the time being.
The Swiss National Bank (SNB) also left its policy rate unchanged. Unlike the other major central banks, which are primarily struggling with inflation that is too high, price stability prevails in Switzerland. However, the economic outlook is a concern, as is the persistent appreciation pressure on the Swiss franc. The SNB again stressed that it stands ready to intervene in the foreign-exchange market if needed, which means the size of its balance sheet is likely to increase further in the coming months.
