The company cited risks from US-Iran tensions, El Nino, a possible AI setback, fiscal fragility, and market reactions if central banks scale back forward guidance.

All face risks from the deteriorating situation in the Middle East. In the US, it expects continued solid growth, elevated inflation and the Federal Reserve to remain on hold. Recent growth has been supported by strong AI investment, fiscal stimulus from the One Big Beautiful Bill Act, and the lagged impact of Fed rate cuts amid accommodative financial conditions.

Business investment appears to be broadening beyond AI, while consumption has held up despite higher energy prices linked to the Iran war, partly because of higher tax refunds and strong payroll income growth.

US core inflation remains well above the Fed’s 2 per cent target, with risks skewed to the upside. It forecasts fourth-quarter 2026 core Personal Consumption Expenditure inflation at 3.2 per cent year-on-year (YoY), while upcoming methodology changes could lower it further.

Wage growth is moderating and tariff-related price pressures are easing, but AI-related price pressures are an upside risk. The balance of risks tilts towards tightening, added the report.

In the euro area, surveys indicate an improving growth outlook, although US-Iran hostilities could pause that trend. The euro area economy was resilient in the first half of 2026 despite the Iran war, with gross domestic product excluding Ireland growing 0.3 per cent quarter-on-quarter in each quarter, a pace Nomura said is in line with plausible estimates for potential growth.

It remains unclear whether the recent worsening of US-Iran hostilities and the resulting rise in oil prices will trigger a further sentiment downturn.

Euro area headline Harmonised Index of Consumer Prices inflation stood at 2.9 per cent YoY in July, with core inflation at 2.5 per cent.

In Japan, Nomura now expects three more rate hikes, compared with two in its previous call, while the relationship between the government and the Bank of Japan has returned to focus.

On July 21, the Takaichi government approved its first Basic Policy on Economic and Fiscal Management and Reform, which stated that it would be “very important” to conduct monetary policy so that the economy could become “strong”.

The report mentioned markets saw this as a possible sign of fiscal dominance that could undermine Bank of Japan autonomy. Based on its inflation outlook and the Bank of Japan’s greater alertness to upside inflation risks, Nomura expects rate hikes in October 2026, March 2027 and July 2027.

In China, the economy is still marked by weak domestic demand and strong exports. Higher oil and chip prices are expected to weaken terms of trade and suppress China’s net exports. As other major central banks consider rate hikes amid rising inflation pressure, the financial holding company maintained its forecast for no reserve requirement ratio or rate cuts in China this year.

Across the rest of Asia, sustained AI demand and a gradual normalisation of the energy supply chain should support the outlook. The greater China and South Korea are benefiting most from the chip supercycle, while AI spillovers are also boosting growth in Malaysia and Singapore. Nomura expects Taiwan, Malaysia and Singapore to outperform consensus expectations, said India’s outlook is brightening, and remains more cautious on Indonesia and Thailand.

Divergent growth and inflation outlooks are expected to keep monetary policy paths uneven across Asia. The company expects policy tightening in Indonesia, Malaysia, the Philippines, South Korea and Taiwan, while rates are likely to be left unchanged in India and Thailand.