Key Takeaways
- UBS's (UBS) proprietary model indicates a 93% probability of a US recession based on "hard data" from May to July 2025, reaching "historically worrying levels".
- Despite this high probability signal, the Swiss investment bank is not officially forecasting a recession, instead predicting a period of "soggy growth" or a "soft landing" for the US economy before a potential recovery in 2026.
- The analysis highlights concerns over cooling labor markets, declining building permits, shrinking GDP, and an inverted yield curve, contributing to fears of potential stagflation akin to the 1970s.
Global investment bank UBS (UBS) has issued a significant warning regarding the health of the U.S. economy, with its proprietary model signaling a 93% probability of a recession. This alarming figure is derived from "hard data" collected between May and July 2025, which UBS describes as reaching "historically worrying levels". The model focuses on concrete, non-survey-based metrics such as jobs, personal income, consumer spending, and industrial production, rather than sentiment surveys.
Despite the high recession probability indicated by this specific model, UBS is not officially predicting an outright economic collapse. Instead, the bank anticipates an extended period of "soggy growth" throughout 2025, with a potential recovery projected for 2026. Analysts at UBS liken the current economic state to a medical diagnosis of "stable but high risk," suggesting the economy is not collapsing but faces significant underlying pressures.
Several supporting indicators underscore the bank's cautious outlook. The yield curve inversion has deepened to 23%, signaling stress within bond markets. Furthermore, UBS's credit market gauge shows the recession probability climbing to 41%, nearly double what it was at the start of the year. When combining hard data with credit market information and the inverted yield curve, UBS's aggregate recession probability rose to 52% in July, up from 37% in January.
The bank's assessment points to notable weakness across key indicators, including cooling labor markets, declining building permits, and shrinking GDP. This environment has fueled growing fears of stagflation—a combination of low growth and rising inflation—a scenario reminiscent of the 1970s. While market observers remain divided on whether a downturn has already begun or if these warnings are simply "recession fear-mongering," the data suggests sustained weakness rather than a sharp decline.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.