Global Manufacturing Weakens as Iran War Disrupts Shipping

Global manufacturing activity weakened in July 2026, driven by rising input costs and falling demand linked to a five-month war involving Iran. The conflict has nearly halted shipping through the Strait of Hormuz, triggering a surge in energy prices and widespread economic volatility.

Regional impacts varied significantly. China's manufacturing growth dropped to its weakest level since January, and India's sector expanded at its slowest rate in nearly five years. In Europe, Germany saw initial third-quarter expansion, though French activity contracted and Italian growth slowed. Britain maintained growth for a ninth consecutive month, but at its lowest pace in four months. Conversely, Japan's factory output grew at its fastest pace in over 12 years, fueled by AI-related demand.

In the euro zone, inflation rose to 2.9% in July, increasing the probability of an interest rate hike by the European Central Bank. Carsten Brzeski of ING characterized the region's economic outlook as a mixed bag, noting that while the economy is more resilient than feared, it is entering a low growth environment.