Economy
Global factories face soaring costs as Iran war causes supply shocks
The economic shock from the Iran war hit European factories last month, suppressing demand for their goods and pushing up raw material costs at the fastest rate in four years, although their Asian peers saw activity expand due to stockpiling, surveys showed Monday.
The U.S.-Israeli conflict with Iran, which began in late February, has upended trade, rattled financial markets and raised concerns over global energy supplies, particularly through the Strait of Hormuz, a key route for oil and gas shipments.
Monday’s surveys came after the heads of the International Energy Agency (IEA), International Monetary Fund (IMF), World Bank and World Trade Organization (WTO) warned the war was straining global energy supplies.
S&P Global’s Eurozone Manufacturing PMI fell to 51.6 in May from April’s near four-year high of 52.2, but ahead of a preliminary estimate of 51.4.
A reading above 50.0 indicates growth.
“Although euro area manufacturers reported an expansion for a fourth successive month in May, the sector is showing signs of struggling under the weight of rising prices and supply disruptions emanating from the war in the Middle East,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
In Germany, Europe’s largest economy, the manufacturing sector stalled while French factories saw a contraction for the first time since November.
The European Central Bank (ECB) will hike its deposit rate this month and at least once more this year to try to stop higher energy prices feeding into core inflation, according to a majority of economists polled by Reuters in May.
Official data due on Tuesday is expected to show inflation rose further above the ECB’s 2% target last month.
British factories raised their prices at the fastest rate since June 2022 last month in response to a big increase in costs.
Asian buffers
Still, factory activity expanded in most Asian economies.
China’s private sector gauge grew for a sixth straight month and South Korea’s hit the fastest pace in five years, highlighting a region-wide push to build buffers against potential conflict-led disruptions.
The RatingDog China General Manufacturing PMI, compiled by S&P Global, fell to 51.8 in May from 52.2 in April, but was slightly better than analysts’ forecast of 51.6. That outcome contrasted with an official survey showing factory activity in the world’s second-largest economy stalled last month as new orders contracted and input costs kept rising.
Japan’s factory activity also expanded with the PMI at 54.5 in May, slowing from April’s more than four-year high of 55.1, though firms there reported the sharpest rise in input costs since September 2022 due to higher raw material prices.
South Korea’s PMI rose to its highest since March 2021 at 54.8 in May, up from 53.6, again underlining firms’ drive to lock in supplies.
In Vietnam, the factory PMI gauge rose to 52.8 from 50.5, while Taiwan’s rose to 56.1 from 55.3, surveys showed. The index for the Philippines jumped to 50.8 from 48.3.
Natural gas supplies launched to Syria through a joint initiative by Türkiye and Azerbaijan are helping support the country’s reconstruction and regional stability, President Recep Tayyip Erdoğan said Monday.
Türkiye and Azerbaijan launched gas exports to Syria last August, with the initial delivery plan foreseeing flows of 1.2 billion cubic meters annually.
The contributions of the supplies to Syria’s development and regional security are “indisputable,” Erdoğan said in a message to the Baku Energy Week conference.
His remarks were delivered by Energy and Natural Resources Minister Alparslan Bayraktar during the event’s opening session.
Gas is transported through Turkish territory to Syria under a coordinated arrangement from Shah Deniz gas field in the Azeri Caspian Sea.
The gas is used to restart power plants in Syria and support basic energy needs in areas affected by conflict.
Türkiye supported opposition forces in Syria throughout the 13-year civil war that ended with the ousting of longtime dictator Bashar Assad in December 2024 and has become one of the new Syrian government’s main allies.
Erdoğan said recent regional developments had demonstrated the importance of energy steps taken by Türkiye and Azerbaijan. He stressed the two countries had successfully implemented a series of major energy infrastructure projects once considered unattainable for the region.
He cited the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, the Baku-Tbilisi-Erzurum natural gas pipeline and the Trans-Anatolian Natural Gas Pipeline (TANAP), which carries Azerbaijani gas to Europe through Türkiye.
TANAP-style electricity corridor with Azerbaijan
Addressing the forum, Energy Minister Bayraktar said Türkiye and Azerbaijan were expanding their energy partnership beyond oil and gas into electricity transmission and green energy corridors.
He said Türkiye, Azerbaijan, Georgia, Bulgaria and southeast European countries were working to strengthen regional energy connectivity.
“We are going to create the electricity version of TANAP,” Bayraktar said.
Türkiye is planning a $30 billion upgrade to its electricity transmission and distribution system over the next decade to accommodate higher renewable, and also nuclear, energy output.
Ankara also plans to upgrade its electricity transmission connections with eastern neighbors Georgia and Azerbaijan, as well as its European neighbor Bulgaria, to trade surplus energy.
Erdoğan said cooperation between Türkiye and Azerbaijan deepened further through joint participation in the Azeri-Chirag-Gunashli and Shah Deniz hydrocarbon fields, while a new partnership in the Shafag-Asiman offshore project demonstrated the continued expansion of bilateral ties.
The president also highlighted the strategic importance of the Iğdır-Nakhchivan natural gas pipeline, which entered service last year and strengthened energy security in Azerbaijan’s exclave.
“Electricity interconnections between Türkiye and Azerbaijan continue to hold strategic importance for us,” Erdoğan said.
He added that the proposed Green Electricity Transmission and Trade project linking Türkiye, Azerbaijan, Georgia and Bulgaria is expected to contribute to the energy security of the wider region.
Turkmen gas exports
On regional energy routes, Erdoğan said there are major opportunities to improve cooperation on exporting Turkmen gas via Azerbaijan and Türkiye.
He added that the Baku-Tbilisi-Ceyhan pipeline is being used increasingly to transport Kazakhstan’s natural resources to Western markets.
Türkiye has a vision to ensure effectiveness across all dimensions of energy, including renewable and green energy, based on efficiency and respect for the environment, Erdoğan said.
Türkiye, he added, will reinforce its determination to be among the leading and exemplary countries in global climate action by hosting the COP31 conference in the Mediterranean city of Antalya between Nov. 9-20.
Manufacturing sector in Türkiye neared stabilization midway through the second quarter, as output returned to growth in May and export orders rose for the first time in 21 months, a closely-watched business survey showed on Monday.
The Istanbul Chamber of Industry (ISO) Türkiye Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 49.8 in May from 45.7 in April, a survey by S&P Global showed. The 50-mark separates growth from contraction.
The May reading was the highest since March 2024.
“The Turkish manufacturing sector moved in a more positive direction in May as renewed growth of exports helped to support a slight rise in production,” said Andrew Harker, economics director at S&P Global Market Intelligence.
Production increased in May after a sharp slowdown in April. The survey said panelists reported signs of improving demand, particularly internationally.
New export orders rose, ending a 20-month run of decline, while total new business still eased slightly as firms cited uncertainty, higher prices and the war in the Middle East.
Where new orders moderated, the survey said, panelists linked this to uncertainty, higher prices and the Iran war.
Employment fell again, but at the slowest pace so far in 2026.
Firms also increased purchasing activity for the first time in just over two years, partly to build safety stocks as prices rose and supply chains were disrupted.
“Despite this, stocks of purchases continued to soften, albeit at a much slower pace than in April,” the survey said.
Input costs continued to rise sharply, with firms citing higher fuel, oil, metals and transportation prices, though both input cost and output price inflation eased.
Suppliers’ delivery times lengthened for a seventh consecutive month.
“There is some question therefore as to whether the expansions seen in May can be sustained given ongoing sharp rises in input costs and supply-chain delays,” Harker said.
“Much will likely depend on whether total new orders can join exports in growth territory in the months ahead.”
Tech investor SoftBank Group dethroned automaker Toyota to become Japan’s most valuable company, as the benchmark Nikkei index briefly reached a new high on Monday amid the continued artificial intelligence boom.
SoftBank, a major backer of ChatGPT maker OpenAI, soared more than 11% in the afternoon trade, after its founder announced a 75-billion-euro ($87.5 billion) investment in AI infrastructure in France.
Masayoshi Son told La Tribune Dimanche weekly on Saturday that it “will be the largest investment in Europe in infrastructure related to artificial intelligence.”
SoftBank said last month its annual net profit quadrupled to more than $30 billion, mainly thanks to its investment in OpenAI.
The company’s market capitalization grew on Monday to more than 47 trillion yen, while Toyota’s fell to just under 46 trillion yen after its shares dropped nearly 5%.
The third-largest is chipmaker Kioxia, formerly the semiconductor unit of the engineering giant Toshiba. It jumped more than 8%.
Global demand for the chips has been driven by the growth of AI technology.
The Nikkei index briefly surpassed 67,000 for the first time in the morning trade.
Turkish economy expanded 2.5% on a yearly basis in the first quarter, official data showed on Monday, with growth slowing for a third consecutive quarter but staying positive despite tighter monetary conditions and the recent Iran war.
The slowdown in growth in the January-March period partially coincided with the start of the U.S.-Israel-Iran war, which sent energy prices soaring and revived inflationary pressures.
The strongest branch of economic activity during the first quarter was information and technology, which grew 9.5%, while agriculture, forestry and fishing grew 4.6%, Turkish Statistical Institute (TurkStat) data showed. Industry shrank 0.8%.
The lira was little changed at 45.9160 against the dollar after the data.
TurkStat said first-quarter gross domestic product (GDP) grew 0.1% from the previous quarter on a seasonally and calendar-adjusted basis,
In a Reuters poll, economic growth was estimated to have slowed to 2.7% in the first quarter, while in 2026 as a whole the economy is expected to expand by 3.15%.
There was no revision to the 2025 growth rate of 3.6%, the data showed. After growing 4.7% in the second quarter last year, growth slowed to 3.8% and then 3.4% in the following two quarters.
Economists are closely monitoring the central bank’s response to the inflation, which surged to 4.18% month-over-month in April for an annual rate of 32.87%. In its second inflation report of the year, the central bank raised its year-end inflation interim target from 16% to 24%, while signalling that all options remain on the table for its next interest rate decision.
The largest Turkish metropolis, Istanbul, is gearing up to host international economic and finance actors for the third edition of Global Islamic Economy Summit, set to take place this week.
Decision-makers shaping the future of the Islamic economy, international leaders, economic authorities, investors, financial institutions, academics and sector representatives will descend into the city between June 3-6 for the summit.
Held this year under the theme “Capital in Islamic Economics: Structuring Wealth for Sustainable Development,” the summit will host important global discussions on ethical finance, the real economy, sustainable development and inclusive economic growth.
The 3rd Global Islamic Economy Summit, organized by the AlBaraka Forum for Islamic Economy under the AlBaraka Summits Türkiye framework, is being held in strategic partnership with the Presidency’s Investment and Finance Office, the Türkiye Wealth Fund (TWF), the Istanbul Financial Center (IFC), the Islamic Cooperation Youth Forum (ICYF) and Ibn Haldun University.
The summit, held at Halkbank’s headquarters in IFC, aims to further strengthen Türkiye’s strategic position in the global Islamic finance and economy ecosystem.
New dimensions of global economic transformation
As transformations in global economic and financial systems reshape the structure and use of capital, the Islamic economic approach treats capital not only as a financial instrument but as a value integrated with ethical responsibility, social benefit and productive economic activity.
Within this perspective, the 3rd Global Islamic Economy Summit aims to comprehensively examine the role of capital in Islamic economics through its core principles, strategic approaches and sectoral applications.
The summit will also highlight topics such as strengthening productive capital circulation, increasing inclusive economic participation and expanding ethical finance models that support sustainable development.
In an evaluation regarding the summit, Abdullah Saleh Kamel, chairperson of the board of trustees of the AlBaraka Forum for Islamic Economy, stated that the summit reflects their belief that capital should serve a higher purpose.
“Productive growth, social balance and sustainable development. Türkiye provides a strong foundation to advance this global dialogue on wealth, responsibility and real economic value,” he told Anadolu Agency (AA).
Finance, technology, sustainability
The summit is expected to host a number of prominent names in the sector and top Turkish finance officials, including Treasury and Finance Minister Mehmet Şimşek.
The attendees also include Burak Dağlıoğlu, the head of the Presidential Investment and Finance Office; Arda Ermut, general manager of the Türkiye Wealth Fund; Ahmet Ihsan Erdem, general manager of the Istanbul Financial Center; and Bilal Erdoğan, chairperson of the board of trustees of the Ilim Yayma Foundation.
Over the four-day summit, numerous panels, sessions and strategic meetings will be held with the participation of central banks, economic administrations, international investment organizations, global banking groups, academics and financial technology leaders.
Topics to be discussed include global economic and capital flows, Islamic banking and participation finance, Islamic capital markets and sukuk, waqf systems and social finance, artificial intelligence and digital financial technologies, fintech and Islamic digital investment tools, sustainable development and ethical investment models, entrepreneurship and SME financing, and international economic integration models.
One of the most notable highlights of the summit is set to be the launch of the AlBaraka Strategic Islamic Economy Report. The event also features the 1 million Saudi riyals ($270,000) Saleh Kamel award.
Moreover, beyond academic and sectoral discussions, the summit also aims to serve as a strategic meeting point where international economic cooperation can be developed.
New collaborations are expected to be established through memorandum of understanding signing ceremonies during the program, while special networking meetings, receptions and gala events will also bring international participants together.
Previously held in major cities such as Istanbul, London and Medina, the AlBaraka Summits are regarded as one of the world’s leading international platforms in Islamic economics and participation finance.
Each year, the summit brings together senior public officials, central banks, financial institutions, investment funds, academics, and media organizations from around the world, aiming to further increase the visibility of Islamic economics in global economic transformation processes.
China’s factory activity flatlined in May following two months of expansion, official data showed Sunday, as weaker demand and soaring energy costs due to the war in the Middle East weighed on growth and output.
The manufacturing purchasing manager’s index (PMI) – a key measure of industrial activity – was 50.0 in May, according to the National Bureau of Statistics (NBS).
The 50.0 mark separates expansion from contraction. Economists surveyed by Bloomberg had predicted a reading of 50.0 as well.
The figure slipped from 50.3 in April and 50.4 in March.
The new orders sub-index dropped to 49.9 from 50.6 in April, while the sub-index on production edged down to 51.2 from April’s 51.5. The sub-index for raw material stockpiles fell to 48.6 from 49.3 in April.
China has been less affected by the global energy shock from the Iran war than many other countries, which face inflationary pressures as oil prices have surged due to the closure of the Strait of Hormuz, through which a fifth of the world’s oil is shipped in peacetime.
Analysts say China’s ample oil reserves and diversified sources of energy have helped the world’s second-largest economy weather the war nearly unscathed.
However, Chinese factories are facing higher costs with the prices of raw materials rising, particularly in the energy and chemical sectors.
Both supply and demand in industries including petroleum, rubber and plastics showed “continued weakness,” said NBS statistician Huo Lihui.
Meanwhile, exports remain crucial for China’s broader economy, according to banking giant HSBC.
While China’s exports to the U.S. have dropped on an annual basis during most months in the past year, its global exports have been robust, particularly to Europe and Southeast Asia.
Hopes for a recovery in exports to the U.S. have risen following President Donald Trump’s summit with Chinese leader Xi Jinping in Beijing in mid-May, and after the two countries agreed to set up separate boards of trade and investment.
Autos, technology and artificial intelligence-related exports have been helping to drive export growth, but some economists also point to concerns over the broader economy. Domestic demand remains sluggish in the wake of a years-long property sector slump that has clobbered consumer confidence and investment.
“Domestic demand is lagging, but high-end manufacturing and exports are holding the line,” Robin Xing, Chief China Economist at Morgan Stanley, wrote in a research note last week.
Chinese leaders have set an annual economic growth target of 4.5% to 5% for this year. That’s the lowest target since 1991, albeit only slightly lower than the “around 5%” target set in 2025.
Morgan Stanley said China will still likely meet its 2026 target, but oil prices and the easing of uncertainties around global oil supplies would be key factors determining where things might be heading.
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