Factories are facing a double hit this July: weaker demand and higher costs, as the ongoing war in Iran continues to disrupt global supply chains. The persistent conflict is pushing up raw material and energy prices while sapping orders, raising the specter of stagflation.
Supply chain strain deepens
The war has dragged on, severing key transport routes and driving up shipping rates. Manufacturers report paying more for inputs like metals, chemicals, and fuel. At the same time, customers are pulling back on orders, uncertain about the economic outlook. The result is a classic stagflationary squeeze — stagnant or falling output paired with rising prices.
Costs rise, demand falls
Higher energy costs are hitting factories directly. Many are running plants at reduced capacity because it's too expensive to operate at full throttle. Meanwhile, export orders are dropping as global buyers brace for a prolonged conflict. Domestic demand isn't picking up the slack either, with consumers and businesses tightening spending.
Stagflation risks mount
Economists have warned for months that a drawn-out war in Iran could tip the global economy into stagflation. July's factory data suggests that risk is materializing. Central banks face a tough choice: raise rates to fight inflation or hold steady to support growth. Neither option looks good for manufacturers.
The conflict shows no signs of easing. Until it does, factories will likely continue to struggle with the twin pressures of rising costs and falling demand. The next few months will test how long they can hold on.
