Business activity in the eurozone slowed down sharply in March amid the escalation of the war in the Middle East, which drove energy prices higher and disrupted global supply chains, a closely watched survey showed Tuesday.
The HCOB Flash Eurozone purchasing managers' index (PMI) published by S&P Global, an important gauge of the overall health of the economy, registered a significantly lower figure of 50.5 this month, down from 51.9 in February.
A reading above 50 indicates growth, while a figure below 50 shows contraction.
"The flash Eurozone PMI is ringing stagflation alarm bells as the war in the Middle East drives prices sharply higher while stifling growth," Chris Williamson, chief business economist at S&P Global Market Intelligence, said.
"Firms' costs are rising at the fastest rate for over three years amid the surge in energy prices and choking of supply chains resulting from the war," he added.
The European Union has also warned of the risk of stagflation, a troublesome blend of high inflation and anaemic growth.
Energy prices have soared since the United States and Israel's war against Iran triggered Tehran's retaliation that disrupted oil deliveries through the Strait of Hormuz.
The key survey also found manufacturers reporting the "most marked lengthening of suppliers' delivery times in over three-and-a-half years."
Eurozone inflation reached 1.9% in February, but the European Central Bank (ECB) has warned that the energy shock caused by the Middle East war would sharply push up inflation and hit the single currency area's growth.
The Frankfurt-based bank's projections forecast that eurozone inflation would come in at 2.6% over this year, above its 2% target.
The inflation reading for March will be published next Tuesday.
Williamson said he expected growth to slow to a quarterly rate of just below 0.1% in March and warned inflation could accelerate to near 3%.
He added the ECB "will have to tread a cautious path with respect to policy in the face of a clear and rising risk of stagflation in the coming months."
