US weakens, Europe steadies, China faces growth risks: Nomura Outlook

Inflation, however, remains well above the US Federal Reserve’s 2 per cent target, with core PCE projected at 3.1 per cent by year-end. Against this backdrop, the Fed is expected to deliver a 25-basis point (bp) cut in September, followed by further quarterly reductions in December and March, Nomura said in its latest Global Economic Outlook Monthly.

Nomura warned that new sector-specific tariffs will weigh on consumer spending, while persistent trade policy uncertainty is likely to dampen business investment. In contrast, the One Big Beautiful Bill act is forecast to provide modest near-term stimulus.

The euro area economy is set for modest improvement, with GDP expected to accelerate by 10bp to 0.2 per cent quarter-on-quarter in Q3 2025. The recently concluded US-EU trade deal is expected to ease tariff-related uncertainty, while defence and infrastructure spending underpin Nomura’s more positive medium-term outlook.

The inflation remains anchored at 2 per cent year-on-year, and the European Central Bank is seen as having ended its cutting cycle, keeping the deposit rate steady at 2 per cent. Southern Europe continues to outperform the North, with Germany and France lagging while Spain and Italy keep deficits under control.

China’s stock market rally, underpinned by fundamentals, risks fuelling irrational exuberance and leverage. GDP growth is forecast to slow sharply to 4 per cent in H2 2025 from 5.3 per cent in H1, amid austerity measures, weaker exports, reduced raw material demand, and ongoing property sector woes. Fiscal pressures are likely to intensify, raising challenges for policymakers.

Japan’s economy is expected to lose momentum in Q3 under Trump-era tariffs, with the Bank of Japan revising core CPI forecasts upward on food-driven inflation. Despite this, policy tightening is only expected in January 2026, followed by a hold through the year.

Broader Asia faced export and capex slowdowns due to tariffs, weaker demand, and redirected Chinese trade flows. Thailand, Singapore, and Korea are most exposed, while India and the Philippines appear relatively insulated. Still, India faced headwinds from an additional 25 per cent US penalty tariff on Russian purchases, compounding existing reciprocal levies and heightening the need for policy easing.

ALCHEMPro News Desk (SG)