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Middle East Fallout Weakens Global Economy, Boosts Energy Prices
Business activity in the U.S. grew at a steady pace in May, while Europe and Asia experienced a slowdown due to rising energy costs. Global economic weakening is attributed to the Middle East conflict has disrupted oil and natural gas supply.
U.S. business activity maintained a steady growth rate in May, contrasting with a deceleration in Europe and Asia, driven by increasing energy expenses. This trend signals a global economic downturn influenced by the Middle East conflict. The ongoing conflict has led to a significant reduction in shipments via the Strait of Hormuz, a critical passageway for one-fifth of the world's oil and natural gas supplies. The resulting supply shortages have propelled energy prices higher across the globe.
S&P's Purchasing Managers Index for the U.S. services and manufacturing sectors remained at 51.7 in May. A reading below 50 indicates contraction, while a reading above signals growth in activity. Manufacturing activity showed resilience, with businesses expediting purchases to circumvent future price increases or procurement challenges. In contrast, the PMI for the eurozone declined to 47.5 in May from 48.8 in April. The U.K. recorded its sharpest drop in services activity since January 2021, contributing to an overall economic slowdown.
U.S. businesses reported an acceleration in cost increases, marking the fastest pace since November 2022. Concurrently, the prices they charged for their goods and services also rose at the quickest rate since August 2022.
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