The ongoing escalation of the situation in Iran has had a rapid and profound impact on the global economic outlook. Without exception, all countries will face the chain reaction caused by the contraction of commodity supply and the resulting upward pressure on prices.

Among them, economies that are more dependent on imports of energy and core materials are experiencing a more significant impact.

The inflationary wave spurred by the war has not only exacerbated the decision-making dilemma of central banks around the world, making interest rate cuts a largely out-of-policy option, but even some central banks that are considering raising interest rates know that this traditional tool is unlikely to be an effective response to inflation caused by supply-side shocks.

This assessment of the economic outlook is based on the premise that the conflict in Iran maintains its current intensity, does not escalate significantly, and that the parties involved gradually advance the ceasefire process.

The real risk is that the longer the standoff continues and the longer navigation in the Strait of Hormuz is blocked, the greater the downside risks to the global economy will be.

Even if a ceasefire is reached and trade routes are restored in the future, it will still take several months for economic activity to return to pre-conflict levels; if energy infrastructure is substantially damaged, the repair cycle could even take several years. Currently, only Qatar's LNG has been severely damaged.

Based on this impact, global economic growth is expected to be significantly affected. However, in the energy crisis triggered by the current conflict with Iran, Canada, the United States, China, and Germany (the core of the Eurozone) are most likely to benefit significantly from a production rebound after the crisis is resolved, thanks to their demographic structure and manufacturing base.

These countries share common characteristics such as a strong industrial base, ample room for inventory adjustment, and a flexible labor market. The cost impact of the energy crisis will accelerate inventory clearing, creating favorable conditions for subsequent inventory replenishment cycles.

Overall Resilience of Developed Markets: Moderate Growth Amid Uncertainty

Despite the uncertain geopolitical outlook, developed markets have demonstrated resilience in maintaining growth amidst uncertainty.

With consumption remaining robust, the labor market fundamentals in most countries solid, the urgency of trade frictions easing, and the lagged effects of previous interest rate cuts gradually emerging, major economies are expected to maintain a general tone of moderate growth at this stage. However, due to differences in their economic structures and energy patterns, countries are experiencing drastically different situations under the impact of conflicts.

China: Reserves and policy buffers take effect, shifting towards sustainable growth.

Compared to other economies, China is in a relatively advantageous position in responding to the impact of this round of conflict.

China possesses the world's largest strategic oil reserves and has maintained crude oil trade with Russia despite sanctions imposed by many countries. Meanwhile, fertilizer export controls have effectively mitigated risks to food supply.

These advance plans have built a solid barrier against external shocks; even if some global inflationary pressures breach these defenses, the stable price situation in China over the past three years will make the impact of inflation more manageable.
However, these buffer measures cannot offset the economic challenges that China already faced at the beginning of the year: the National People's Congress set the actual economic growth target for this year at 4.5%-5%, and the decision-making level has faced the situation of multiple challenges such as population decline and slowdown in export markets.

Given this, there is limited room for further large-scale policy support, and the Chinese economy is gradually shifting towards a slower but more sustainable growth path.

US: Domestic supply buffers shocks, interest rate cut expectations fail to materialize.

Thanks to its abundant domestic energy and fertilizer supplies, the United States has been relatively less directly impacted by this conflict.

However, the global pricing mechanism for commodities is still causing the impact of rising costs to gradually become apparent – the increase in energy expenditures will partially offset the short-term benefits brought by this year's individual income tax filing.

To make matters worse, US inflation has been consistently higher than the policy target, and service sector prices have even shown a slight acceleration in their rise. The unexpected decrease of 92,000 non-farm payroll jobs and the simultaneous rise in the unemployment rate in February further highlight the signs of weakness in the labor market.

The market's previous expectations for a Fed rate cut were based on the core premise of stable inflation. Now that this foundation no longer exists, the Fed is not expected to start cutting rates before the end of 2026. If inflation remains high, the timing of rate cuts may be further delayed, and the possibility of rate hikes cannot be ruled out.

Canada: Energy export benefits are becoming increasingly apparent, but policy and trade risks coexist.

The deteriorating global economic environment is detrimental to all economies, but Canada possesses a unique advantage that provides a natural buffer against soaring energy prices.

As an energy exporter, the country not only has a secure fuel supply, but is also expected to directly benefit from rising oil prices.

However, before geopolitical uncertainties arose, the Canadian economy had already entered a slowdown phase: the unemployment rate rose 0.2 percentage points to 6.7% in February, erasing the improvement made in January; the economy is expected to decline in the second and fourth quarters of 2025, with only the growth in the first and third quarters supporting a real growth rate of 1.7% for the whole year.

Fortunately, spare capacity in the economy will effectively buffer the inflationary impact of energy prices.

The Bank of Canada chose to keep interest rates unchanged at its March meeting, and no major policy adjustments are expected to follow. Inflationary pressures will be offset by weak economic growth and a weakening labor market.

It is worth noting that the USMCA agreement will be renegotiated this summer, policy uncertainty continues to rise, and the US's preference for bilateral trade negotiations may expose Canada to the potential risk of sudden changes in trade terms.

Eurozone: Energy shock coupled with weak recovery exacerbates stagflation risks.

Europe has not yet fully recovered from the energy shock triggered by the Russia-Ukraine conflict, and the outbreak of the Iranian conflict followed closely behind.

Previously, liquefied natural gas supplies from the Middle East had helped Europe fill part of its energy gap, and LNG imports from Norway and the United States will continue to ensure stable energy supplies for many countries. However, the pressure of rising global energy prices will still affect the entire Eurozone.

Industrialized economies such as Germany will continue to face pressure, and the increasingly tense trade environment will further constrain export performance.

However, the European labor market remains historically tight, with the unemployment rate falling to a record low of 6.1% in January, providing some support to the economy.

The European Central Bank had determined at the beginning of the year that monetary policy was within a reasonable range, but its confidence in maintaining stable interest rates has now been greatly shaken.

The weak growth outlook will constrain the central bank's consideration of raising interest rates to combat inflation, and interest rates are expected to remain unchanged this year. The triple pressure of weak growth, high interest rates and rising inflation is pushing the Eurozone toward the brink of stagflation.

UK: A Double Dilemma of Growth and Inflation, Monetary Policy Faces a Dilemma

At the beginning of the year, the UK faced the predicament of sluggish economic performance and a continued weakening labor market.

In 2025, the country's three-month moving average unemployment rate climbed 0.8 percentage points to 5.2%, and is still trending upward; even if the situation in the Middle East remains unchanged, the UK's Office for Budget Responsibility has predicted that GDP growth in 2026 will be only 1.1%, lower than the previous year's 1.4%.

Regarding inflation, the core inflation rate was 3.4% over the past year and has recently rebounded slightly. Faced with the coexistence of slowing growth and high inflation, the UK has very limited room for policy maneuver.

The Bank of England's Monetary Policy Committee ended four years of disagreement at its March meeting, unanimously deciding to keep interest rates unchanged and making it clear that if energy price increases are larger and last longer, a tighter monetary policy may be necessary.

Since the UK's inflation level at the beginning of the year was already higher than that of most developed economies, the new round of inflationary shocks has further increased the probability of interest rate hikes, and market expectations for two interest rate cuts this year have dropped significantly. Current interest rates already have a tightening effect, and the central bank needs to remain patient and wait for the impact of the crisis to subside before restarting the easing cycle next year.

Japan: Inflation firmly drives interest rate hikes, energy and fiscal pressures emerge.

Japan's economy retains some momentum ahead of a more complex year, with fourth-quarter GDP revised to grow 0.3% quarter-on-quarter and the unemployment rate remaining stable.

After years of deflation, Japan has achieved positive inflation for four consecutive years, with core inflation falling to a cyclical low of 1.6% year-on-year in February. It is worth noting that Japan holds nationwide spring labor-management negotiations every year to determine wage increases. This rise in inflation may boost wage demands, potentially triggering a mild wage-price spiral.

To alleviate the pressure on people's livelihoods, the government plans to introduce food tax cuts and fuel subsidies, but this measure may lead to renewed fiscal pressure.

As a country highly dependent on energy imports, Japan transports over 90% of its oil and 20% of its LNG through the Strait of Hormuz. Although its vast energy reserves can provide some buffer, rising prices will still drag down the country's economic prospects.

Unlike other central banks' cautious response to rising energy prices, this inflationary shock will solidify the Bank of Japan's pace of interest rate hikes, while continued wage growth will provide strong support for the central bank to gradually normalize monetary policy.

Australia: High inflation dominates policy direction, putting pressure on energy-sensitive economies.

Australia's economy is poised for a rapid recovery by the end of 2025, with a 0.8% quarter-on-quarter growth in the fourth quarter and a full-year growth rate of 2.0%. The unemployment rate has remained stable within the 4.1%-4.3% range over the past five months. However, inflation remains a persistent concern, with February's year-on-year inflation rate at 3.7%, still above the central bank's target range. Even before geopolitical instability, high inflation was already a core challenge for the country's economy.

As an economy highly sensitive to global fuel prices, Australia will be directly and significantly impacted by global energy shocks. The Reserve Bank of Australia (RBA) is highly vigilant about inflation risks, raising the policy rate to 4.10% at its March meeting—even without considering geopolitical factors, the high inflation itself is sufficient to trigger a rate hike.

Currently, the current interest rate level is sufficient to effectively curb inflation risks, and it is expected that the central bank will not adjust policy interest rates in the short term.

Summarize:

Canada, the United States, China, and Germany are most likely to passively reduce their inventories during this energy crisis and benefit after the crisis subsides. These countries will experience a virtuous cycle of "reduced inventories → capacity adjustment → demand recovery → production expansion," with the energy crisis becoming an opportunity to optimize inventory structure and improve production efficiency.

In contrast, the UK, Japan, and Australia have limited potential to benefit, mainly due to labor constraints, weak growth, or inflationary pressures, while other Eurozone countries will need to wait for an overall economic recovery before fully realizing the benefits of inventory replenishment.

It should be noted that the extent of the benefits also depends on when the energy crisis is resolved, the policy responses of various countries, and the speed of global demand recovery.

Businesses should seize the inventory adjustment window during the crisis to optimize their supply chain and production layout, and prepare for the subsequent inventory replenishment cycle.