Market News

BY Jana Randow and Alexander Weber

(Bloomberg) -- The economic toll of the Iran war is hitting home in Europe, where more muted growth and faster inflation risk deepening industrial, fiscal and political pressures across the region.

Donald Trump’s military campaign, whose conclusion remains as unclear as when the first attacks were launched a month ago, is prompting countries to slash their expectations for output while bracing for an energy-driven upswing in prices.

The upshot for a continent that was just finally shaking off the effects of the conflict in Ukraine appears to be a partial return to the policy settings used to vanquish that crisis as households are offered aid and central banks pivot toward interest-rate hikes.

For companies, while the fallout is already straining resource-hungry sectors — including German chemical makers — there’s a growing danger it will spread more broadly as personal incomes are eroded.

All that will be on the minds of European Union finance ministers convening Friday. They’ll be briefed by International Energy Agency chief Fatih Birol in a hastily arranged video call to assess the war’s impact and how to better coordinate relief.

“It’s very clearly the energy-intensive sectors that are hurt first and foremost,” said Christian Keller, Barclays’s head of economics research. “But the longer it lasts, it will go into every sector, every input price.”

As oil and gas markets push higher and sentiment indicators plunge, Germany and Italy are among countries weighing cuts to their official growth projections, following a more somber outlook last week from the European Central Bank.

The current shock “is probably beyond what we can imagine at the moment,” Christine Lagarde said in an Economist podcast released Thursday. This “leads to a sort of a delayed assessment of how serious this current crisis is.”

The German chemical industry — hit hard by the last spike in energy costs in 2022 — has warned of output cuts with the Strait of Hormuz still effectively shut.

Production at the country’s biggest ammonia plant, SKW Piesteritz GmbH, has been scaled back to the technical minimum of 85%, while Evonik Industries, a maker of specialty chemicals, is still surveying the damage it may face.

“It’s still too early to quantify the exact consequences,” Chief Executive Officer Christian Kullmann said. But “Evonik won’t be able to escape the indirect consequences of the hostilities.”

Container shipper Hapag-Lloyd AG is facing additional weekly costs of $40 million-$50 million for things like fuel, insurance and storage. The company is trying to recover some through “contingency and emergency charges,” CEO Rolf Habben Jansen said.