Nomura

While the US economy is largely insulated from recent energy price moves, Asia faces double exposure due to its significant net energy imports and the fact that a disproportionate share of its oil, gas, and fertilizer imports pass through the Strait of Hormuz, according to Nomura Connects, a unit of Japanese financial services group Nomura.

Thailand, South Korea, and India are among the most vulnerable economies, it noted.

A broad range of US employment indicators continue to suggest stabilization following last year’s slowdown. The unemployment rate is projected to begin declining and reach 4 percent by the end of the year.

“Core US inflation remains well above the Fed’s 2-percent target, and we believe risks are skewed to the upside. Against this backdrop, we expect no more rate cuts under Jerome Powell’s tenure as Fed chair. However, owing to the change in Fed leadership and easing inflation concerns, we forecast two cuts in the second half of the year, in June and September,” said Nomura Connects.

Euro area gross domestic product (GDP) growth is expected to be negatively impacted by higher energy prices due to the region's heavy reliance on energy imports, as well as likely weaker consumer and business sentiment amid heightened uncertainty.

Moreover, weaker global GDP resulting from higher energy prices would reduce demand for euro area exports. “We believe a 10-percent rise in energy prices would lower euro area GDP by 0.2 percentage points cumulatively over two years,” it said.

Nomura Connects also revised up its euro area inflation forecast for this year to 3.1 percent year on year (YoY), expecting it to slow to 2.5 percent in 2027.

The economic impact from the Middle East conflict has been largely contained for China so far. Although a sharp and sustained rise in global oil prices could increase China’s inflation and imports, the impact is less severe than for other Asian economies.

“We maintain our annual growth forecast of 4.3 percent for China and expect Beijing to step up fiscal expansion and deliver a 50 basis points reserve requirement ratio (RRR) cut in Q2 2026 and a 10 basis points policy rate cut in Q4,” it added.

The most imminent inflation risk for Japan is the extent and duration of elevated oil prices. Additionally, China’s ban on exports of dual-use items remains a risk for Japan.

Broader Asia continues to experience a tale of two speeds, driven by a sustained technology upcycle contrasting with soft non-tech exports and a mixed outlook for domestic demand. Nomura Connects expects growth to exceed consensus in South Korea, Malaysia, Singapore, and India, while it anticipates lower growth in Thailand and the Philippines.

Korea's twin chip-housing supercycle is expected to drive above-trend growth and keep the Bank of Korea on hold through the end of 2026.

India's Goldilocks narrative of strong growth and low inflation persists but risks being jeopardized by sustained Middle East tensions.

Singapore stands to benefit from tech sector spillovers and strong domestic demand, which will likely push core inflation above 2 percent, noted Nomura Connects.

Rising energy costs are increasing pipeline price pressures across Asia, suggesting inflation will likely climb from current low levels.

Given escalating tensions in Iran, most central banks in the region are likely to remain on hold, it added.

Fibre2Fashion News Desk (DS)