Nomura sees resilient H2 CY26 global economy, but warns of US-Iran tensions, El Niño and AI setback

The global economy is likely to remain resilient in the second half of 2026 despite a growing list of risks, including the fallout from US-Iran hostilities, El Niño, elevated inflation and fiscal fragility, according to Nomura. The financial services group said the world economy had absorbed the energy price shock, rising inflation and higher bond yields in the first half, helped by Artificial Intelligence (AI) investment and government policy support.

“In the first half of 2026, the world economy — supported by the AI transformation and agile government policies — was resilient to the energy price shock, rising inflation and rising bond yields,” Nomura said. “However, we see several more risks, including US–Iran tensions, El Niño, an AI setback, fiscal fragility, and market reactions to central banks potentially dialing back their forward guidance.”

US growth remains firm, but inflation stays above target

In the US, Nomura expects economic growth to remain solid, supported by strong AI investment, fiscal stimulus from the One Big Beautiful Bill Act and the delayed impact of previous Federal Reserve rate cuts. Business investment is also broadening beyond the AI sector, while consumption has remained resilient on the back of higher tax refunds and strong payroll income growth.

However, core inflation remains well above the Fed’s 2% target. Nomura forecasts Q4 2026 core personal consumption expenditure (PCE) inflation at 3.2% year-on-year. It expects the Fed to remain on hold, although its reluctance to respond to emerging inflation pressures could eventually force it to raise rates rapidly.

Euro area resilient; ECB seen delivering one more hike

The euro area economy grew 0.3% quarter-on-quarter in each quarter of the first half of 2026, excluding Ireland. But inflation remains sticky, with July headline HICP inflation at 2.9% and core inflation at 2.5%.

Nomura expects only one more ECB rate hike, in September, taking the deposit rate to 2.50% after the 25-basis-point increase in June. Renewed Middle East hostilities and higher oil prices, however, pose an upside risk to its inflation outlook.

Japan set for three more BOJ rate hikes; Asia outlook diverges

Nomura expects Japan’s real GDP to contract in the third quarter, mainly because of weaker exports and slowing private consumption, but said the economy would remain on a recovery path, with capital expenditure providing support. It now expects three more Bank of Japan rate hikes — in October 2026, March 2027 and July 2027.

In Asia ex-Japan, Taiwan and South Korea are benefiting from the chip supercycle, while AI spillovers are supporting Malaysia and Singapore. Nomura said India’s outlook is “brightening”, while it remains more cautious on Indonesia and Thailand.

El Niño and oil prices are expected to shape Asia’s inflation trajectory, particularly through food prices. Nomura expects policy tightening in Indonesia, Malaysia, the Philippines, South Korea and Taiwan, while rates are likely to remain unchanged in India and Thailand.