UBS Forecasts 3% U.S. Growth Driven by 13% Capital Expenditure Surge

UBS has recently published a report outlining the potential for the U.S. economy to maintain a growth rate of around 3% in the coming quarters. This optimistic forecast is supported by three main factors: increased capital expenditure, structural improvements in the labor market, and adjustments in fiscal policy.

Capital expenditure is highlighted as a key driver of economic growth. The report notes that capital expenditure has already seen a significant increase of 13% to 14% in the first half of the year. This growth is expected to continue into the second half of the year, driven by tax incentives such as the full expensing of capital expenditures and building structures. This increase in capital formation is seen as crucial for boosting productivity, which is projected to stabilize at around 2% for the year, providing substantial support for economic growth.

The labor market is another critical area identified in the report. The growth in the labor supply is expected to remain within the range of 0.7% to 0.8%. This growth is not only dependent on the domestic birth rate but also benefits from optimized legal immigration policies and increased participation rates among the elderly. Policy measures such as the elimination of small business taxes, overtime taxes, and adjustments to social security benefits are creating positive incentives for the labor market. The fiscal surplus of approximately 200 million dollars in June, an improvement of nearly 900 million dollars from the previous year, along with the expected savings of around 1500 million dollars from the cancellation of student loan exemptions, provides the necessary fiscal space for labor market expansion.

The report also addresses market debates, particularly the pessimistic outlook from the Congressional Budget Office (CBO). The report argues that the CBO's underestimation of productivity growth and labor force growth creates a double bias. In reality, productivity growth is closer to 2%, and labor force growth can reach 0.7% to 0.8%, which together naturally lead to a 3% GDP growth rate.

On the issue of inflation and tariffs, the report clarifies that most tariff costs have been absorbed by exporters, resulting in a one-time adjustment to domestic price levels. This contradicts the complex arguments made by some Federal Reserve officials about the secondary effects of tariffs on inflation expectations.

In terms of policy, in addition to tax incentives, the government is simplifying building permit processes to accelerate infrastructure investment. Recent spending bills that fully expense investments in factories and data centers are targeted at addressing the long-term weakness in U.S. building structure investments. While specific figures for the impact of tariff revenue on the fiscal deficit are not provided, the improvement in the budget surplus and optimized spending suggest that the fiscal deficit will be significantly smaller than last year.

In conclusion, UBS argues that the U.S. economy can achieve a 3% growth rate through a combination of policy-driven initiatives, market support, and fiscal adjustments. The core strategy involves using short-term fiscal stimulus to achieve long-term productivity gains and using structural transformations to strengthen economic resilience.