Manufacturing Industry Growth Downgraded Amid Geopolitical Disruptions

The global manufacturing industry is headed for a lower growth rate in 2026 than initially forecast, Interact Analysis says. According to the market intelligence specialist, the global oil shock triggered by the US-Israel war with Iran, as well as continued action on tariffs from the United States, has resulted in higher input costs for businesses and an apprehensive approach to investment. Its latest Manufacturing Industry Output (MIO) Tracker suggests that, due to current geopolitical uncertainty, the global manufacturing industry will now only achieve a growth rate of 2.6 percent, down from 2.9 percent projected in the February edition of the MIO Tracker. In addition, the average annual growth rate for 2025-30 has been revised down from 3.1 to 2.9 percent.

Interact Analysis predicts Asia will remain the region with the highest growth rate in 2026 at 2.9 percent (down from 3.2), while the Americas will continue to experience the weakest growth at 1.9 percent (down from 2.2).

Global disruptions are increasingly becoming the status-quo

Interact Analysis has found that businesses are increasingly viewing frequent global shocks as the new status quo, with many choosing to adapt their supply chains to become more resilient to a new culture of uncertainty and disruption. Just-in-time (JIT) manufacturing processes have become unpopular due to their lack of flexibility in the face of sudden disruption, and many firms are also beginning to account for potential energy price shocks in an effort to mitigate the effects of any future disruptions. Because of these efforts from the manufacturing industry to strengthen their supply chains and hedge for uncertainty, Interact Analysis predicts the overall effect on production from the current oil shock will be a small pullback. However, analysts warn that, should this disruption persist, rising input costs and weaker consumer demand could feed more directly into sector-level production declines. This could result in a significant downgrade from the current outlook.

Semiconductor production remains strong, despite challenges

While growth forecasts for 2026 and the 2025-30 period have been downgraded due to geopolitical factors, a number of sectors have continued to resist the negative effects of these disruptions. Interact Analysis projects the semiconductor sector will experience strong growth across the global manufacturing economy, appearing in the top performing sectors for 8 of the 10 largest manufacturing economies. The United States leads the way with the strongest projected growth rate of 10.7 percent in its semiconductor sector during 2026, while South Korea is a close second with a projected growth rate of 10.3 percent.

The strong growth rate in the United States comes in part from AI-driven demand for data centers, as well as the 2022 CHIPS & Science Act, which provides funding for domestic semiconductor research and manufacturing. In South Korea, the growth in the semiconductor sector can be explained by heavy global demand for high-end chips manufactured in the country, leading to high export volumes. 

Jack Loughney, Interact Analysis Senior Data Analyst, UK, says, “Overall business sentiment from our clients is that, notwithstanding the current events across the globe which are somewhat concerning, they have begun to inoculate themselves against uncertainty. Just-in-time manufacturing is mostly a thing of the past, energy price shocks have been accounted for, and many companies see being disrupted as the status quo instead of an exceptional event.

“The longer-term implications of the current Middle East conflict and disruption to the Strait of Hormuz remain highly uncertain and will depend on how the situation develops over the coming months. In the short term, we can expect a reduction in consumer spending due to higher essential costs. However, the effect on overall production is expected to be a small pullback rather than a severe black swan event.”

interactanalysis.com