UBS Warns 93% Recession Risk for U.S. Economy in 2025

UBS has issued a warning that the U.S. economy is at a 93% risk of recession based on "hard data" from May to July 2025. The current economic situation is described as "stable but high-risk," similar to a medical condition like high blood pressure, which may not immediately collapse but poses significant long-term risks. UBS has not formally predicted a recession but expects economic growth to be weak in 2025, with a potential recovery in 2026.

UBS highlights that the current signals have reached "historically concerning levels," noting its past success in identifying economic recession turning points. A key warning sign is the inverted yield curve, indicating pressure in the bond market. The current inversion stands at 23%, having persisted for several months but is significantly higher than levels seen at the start of 2025. UBS also emphasizes pressure in the credit market, stating that the probability of a recession, based on credit indicators, has risen to 41%, nearly double the figure from January.

Analysts have observed increasing signs of economic slowdown in 2025, aligning with UBS's warning. Despite the data appearing weak, it is described as "broad but not deep," indicating a sluggish economy that has not yet collapsed. After a brief recovery at the end of 2024, hard data turned negative again in February 2025 and has remained weak since May, showing stagnation rather than a sharp decline.

UBS points out that major economic indicators such as employment and production have not shown a collapse below trend levels, a scenario typically seen before a recession. The message from UBS is that the U.S. economy is experiencing slow growth or mild contraction, rather than an abrupt collapse. Analysts warn that this could lead to stagflation, a situation of low growth and high inflation similar to the 1970s.

Despite the 93% recession risk indicator, UBS has not formally predicted a recession. Instead, it forecasts weak economic growth in 2025 with improvement in 2026. By integrating signals such as hard data, the yield curve, and credit pressure, UBS estimates the overall probability of a recession in July to be 52%, up from 37% in January. Historically, this level is often associated with economic recessions.

UBS warns that the economy is currently at a "stall speed," especially after the July employment report showed very weak hiring conditions, raising questions about economic stability. Other experts share similar views. In August, Mark Zandi warned that the U.S. is on the brink of a recession, citing weak employment data and downward revisions similar to past recessions.

Zandi predicts the highest risk of recession will come during the winter of 2025 to 2026, with a 50% chance of occurrence. He also notes that by the end of August, one-third of the U.S. GDP was in recession or near recession, while only one-third of the economy was still growing. JPMorgan also sounded the alarm, stating that a sharp decline in labor demand is typically a "leading indicator of recession," as slowing job growth often leads to layoffs.

Overall, UBS and other economists indicate that the U.S. economy is weaker than a soft landing but has not fully collapsed, remaining on the edge of danger in 2025.