Euro area: Iran conflict may force ECB to act – Nomura

Nomura’s Global Markets Research team revises its Euro area HICP projections higher on updated Oil and gas assumptions. The bank now sees HICP at 2.7% in 2026 and 2.2% in 2027, with inflation above target in early 2026. Nomura expects the ECB to deliver two rate hikes in 2028 and ultimately stabilise HICP at 2.0% in 2028.

Higher inflation and delayed ECB easing

"We update our euro area HICP inflation forecasts for 2026 and 2027 to reflect new assumptions on crude oil and natural gas prices. We raise our 2026 HICP inflation forecast by 0.6pp to 2.7%, and we raise our 2027 HICP inflation forecast by 0.2pp to 2.2%. We expect the ECB to ensure HICP inflation stabilises at 2.0% in 2028."

"We expect GDP growth to accelerate above potential from mid-2026 due to German fiscal spending and Spanish outperformance."

"We expect inflation to print above target in H1 2026, due to the conflict in Iran. Services inflation is sticky but moderating."

"We expect two ECB rate hikes in 2028 as growth rises above potential but see risks of hikes this year due to the Iran conflict."

"We expect a meaningful fiscal loosening in Germany this year, but there are risks it is offset by fiscal tightening elsewhere."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)