US Recession Chances Plummet to Below 10% Amid Strong First-Half Growth

The probability of a US recession in 2023 has decreased from nearly 70% in April to below 10%. Despite decent first-half growth, the economy's performance will be closely watched as 2023 draws to a close. The historically tight high-yield spread has kept the author on the sidelines, making it difficult to make a strong case for investing in the market.

The U.S. economy is showing signs of both resilience and potential fragility, as indicated by recent economic data and expert analyses. While the probability of a recession in 2023 has decreased from nearly 70% in April to below 10%, the economic outlook for the remainder of the year remains closely watched.

According to UBS, the global investment bank, the U.S. economy faces a 93% risk of recession in 2025 [1]. This high warning signal is based on "hard data" from May to July 2025, which shows weak growth, slow jobs, and stress in credit and markets. UBS described the current condition as "stable but elevated" risk, comparing it to high blood pressure, which may not be collapsing but can be dangerous.

The inverted yield curve, a key indicator of economic health, is currently 23% inverted, indicating stress in bond markets. This is a significant increase from early 2025 and has been a consistent signal of economic downturns in the past. Additionally, stress in credit markets has also risen, with recession probability from credit metrics jumping to 41%, almost double since January [1].

Despite these warning signs, UBS is not officially predicting a recession in 2025. Instead, it expects "soggy growth" in 2025, with possible recovery in 2026. The overall recession probability in July was 52%, up from 37% in January [1]. Other experts, such as Mark Zandi of Moody's Analytics, have also raised concerns about the U.S. economy's stability, warning that the biggest danger will come in winter 2025-2026, with the odds of a recession at 50-50 [1].

However, the U.S. economy has shown signs of resilience in recent quarters. The second quarter of 2025 saw a 3.3% annualized growth rate, a sharp turnaround from the sluggish first quarter [2]. This rebound was driven by better-than-expected consumer spending and private investment, as well as a sharp reversal in trade-related distortions. The U.S. trade deficit in goods shrank dramatically to $85.88 billion in June, nearly halving from the March level [2].

Despite these positive signs, the economy's performance will continue to be closely watched as 2025 draws to a close. The historically tight high-yield spread has kept many investors on the sidelines, making it difficult to make a strong case for investing in the market. As the year progresses, the focus will remain on the jobs market, consumer spending, and overall economic growth to determine the likelihood of a recession.

References:
[1] https://m.economictimes.com/news/international/us/recession-alert-ubs-puts-us-at-93-risk-as-economy-slips-into-soggy-territory/articleshow/123683417.cms
[2] https://finance.yahoo.com/news/us-economy-roars-back-3-104523644.html