UBS Warns of 93% Recession Risk as US Economy Slips into Soggy Territory

UBS has warned that the US economy is showing a 93% risk of recession based on "hard data" from May to July 2025. The bank described the current condition as "stable but elevated" risk, comparing it to high blood pressure. The inverted yield curve and stress in credit markets are red flags, with recession probability from credit metrics jumping to 41%. Analysts warn this could mean stagflation, with low growth and rising inflation.

UBS has issued a stark warning about the U.S. economy, indicating a 93% probability of recession based on "hard data" from May to July 2025. The bank described the current economic condition as "stable but elevated" risk, drawing a parallel to high blood pressure. This assessment is supported by several key indicators, including an inverted yield curve and stress in credit markets, which have raised the recession probability from credit metrics to 41% [1].

The UBS analysis, which relies on objective economic indicators such as personal income, consumption, industrial production, and employment data, found that while most metrics are turning negative, the economy is not yet showing signs of rapid unraveling. Instead, the bank characterizes the U.S. economy as being in a prolonged phase of stagnation or slow contraction, warranting caution even as outright collapse has not yet materialized [1].

The inverted yield curve, which is 23% inverted, is a classic warning sign of an impending recession. Additionally, stress in credit markets has significantly increased the recession probability, with the credit metrics-based probability rising to 41% [1]. This elevated risk is not just a concern for UBS; other analysts, such as Mark Zandi of Moody's Analytics, have also warned about the potential for recession, citing similar hard data [1].

Despite the elevated risk, UBS is not formally forecasting a recession but rather expects "soggy growth" followed by improvement in 2026. The bank's U.S. Economics team has warned about "stall speed" in the economy, particularly after the July jobs report revealed very low employment growth [1]. This cautious outlook is reflected in UBS's aggregate recession probability, which stood at 52% for July, up 15 percentage points since January and at levels historically associated with NBER-designated recessions [1].

The warning from UBS comes at a time when the U.S. economy is already facing challenges from trade tariffs imposed by the U.S. administration. These tariffs have led to a downgrade in Switzerland's economic outlook, with UBS cutting its 2026 GDP forecast to just 0.9% due to the uncertainty surrounding trade negotiations [2]. The Swiss economy managed to expand in the first half of 2025, but the path forward is far murkier, with the potential for job losses and wage stagnation if tariffs are extended [2].

Analysts at Zurich's KOF institute have added a sharper warning, suggesting that if the tariffs are extended to Swiss pharmaceutical exports, a downturn could be unavoidable. This could potentially reshape Switzerland's trade surplus and weaken its medium-term growth trajectory [2].

In summary, UBS's warning about the elevated risk of recession in the U.S. economy underscores the need for caution and vigilance. The combination of an inverted yield curve, stress in credit markets, and low employment growth signals a precarious balance for the economy. Policymakers and market watchers must remain alert as the year progresses, with the potential for stagflation looming on the horizon.

References:
[1] https://fortune.com/2025/09/02/recession-probability-93-percent-hard-data-ubs-stable-elevated-economy/
[2] https://finance.yahoo.com/news/trumps-39-tariff-just-crushed-201802456.html