The Middle East Crisis Is Starting to Weigh on the Economy

livemint.com:

Europe’s economy is beginning to feel the pain from supply-chain disruptions caused by the crisis in the Middle East. Data released on Wednesday showed businesses had to wait longer for parts to arrive in January after attacks by Yemen-based Houthi rebels on cargo ships in the Red Sea disrupted freight routes from Asia. The attacks persuaded numerous freight carriers to take the safer but longer and more expensive journey around Africa via the Cape of Good Hope.

If the added costs pile up and persist, they could translate into fresh inflationary pressure in Europe, pushing back an expected cut in interest rates. Surveys of purchasing managers at European manufacturers and service providers published Wednesday marked the first time respondents reported an increase in delivery times in more than a year. While companies such as Tesla and Volvo had announced delays in production caused by the disruption, the surveys are the first evidence of a more widespread impact on European businesses.

A lengthening of supply times that began in 2020 contributed to the sharp pickup in global inflation rates that started in mid-2021, and economists and central bankers worry that the latest disruptions may have a similar, albeit much smaller, impact on prices. Economists don’t expect the crisis to affect the U.S. as much because its trade isn’t as dependent on the Suez Canal as Europe’s and it has more alternative routes for goods coming from Asia.

According to the data firm S&P Global, a measure of supply times reported by eurozone businesses fell to 48.6 in January from 53.2 in December. A reading below 50.0 indicates that waiting times are getting longer. The U.K.