UBS predicts that the US economy will slow down significantly by 2025. They project a real GDP decline of around 1%.
The bank’s note sent to its clients on Tuesday cited a combination of declining fiscal support, high interest rates and persistent inflation to explain the anticipated deceleration.
The note said: “We expect the US economy to continue slowing down, with a growth rate of 1% by 2025.”
UBS warned also that unemployment will rise to 4,6% by 2025.
A weakening of private payrolls, and the decline in jobs in services sectors are shaping our outlook.
UBS’s analysis highlights several factors which could worsen the economic slowdown during the second half 2025.
The ‘fiscal decline’ is the result of the reduction or expiration of the government’s support programs which previously helped to boost household incomes as well corporate balance sheets.
Consumer confidence and spending – the two key drivers for US GDP – are likely to fall without this safety net.
Pressure from tariffs and inflation
Analysts at UBS cited the recent increase in tariff rates to be a significant headwind.
From 2%, the average tariff rate is now approximately 16 %.
The firm predicts that core inflation in personal consumption expenditures will reach 3.4% by 2025.
UBS reports that this inflationary pressure combined with slower wages growth is expected to hamper real disposable income. This is because personal consumption expenses are already behind.
Core CPI increased 0.2% from month to month in the most recent inflation figures.
UBS believes that the benefits of the “Big Beautiful Bill”, which is expected to include fiscal support measures, will not materialize until the first quarter of 2026.
The note stated that “we see tariff effects in 2H2025”, indicating a challenging period ahead for both households and business.
Stress on credit markets is rising
UBS closely monitors the credit market for any signs of stress, in addition to its macroeconomic and inflationary concerns.
According to the firm’s credit-based proprietary recession indicator, the likelihood of a decline through the first three months of 2026 is now 47%.
The rising delinquency rate, particularly in mortgage and student loans, is contributing to concern about household finances.
UBS analysts have also noted broader signs that stress is affecting both the consumer credit and corporate markets.
UBS stated that certain offsets could cushion the impact of the weakened outlook.
Credit usage by households with higher incomes may temporarily boost consumption.
The firm is still defensive in its strategy and favors high-quality assets, non-cyclical consumer sectors, due to the tighter spreads on credit compared with 2022.
UBS’s cautionary tone is a reflection of growing concerns that multiple headwinds could converge in the second half 2025.
The bank warns that as inflation and credit pressures increase, it is important to take a cautious approach.
The ICD first published the post UBS forecasts further slowing in US economic growth second half of 2025
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