UBS sees 'a further slowing in U.S. economic growth' in second half of 2025
In a note to clients on Tuesday, the bank stated, 'We see a further slowing in US economic growth to ~1% in 2025,' and warned of a rising unemployment rate, projecting it will reach 4.6% by year-end.
UBS analysts pointed to 'softening in private payrolls,' a decline in job listings in services, and higher effective tariffs as primary headwinds.
The firm also noted that the average tariff rate is now roughly 16%, up from about 2% in 2024, and expects this to result in 'core PCE of ~3.4% by end-2025.'
UBS sees these pressures weighing on real disposable income growth, which is already trailing personal consumption expenditures.
While fiscal measures tied to the Big Beautiful Bill may support consumption, UBS noted these won't take effect until the first half of 2026.
'We see tariff impacts in 2H 2025,' the firm wrote.
UBS also highlighted signs of stress in consumer and corporate credit. 'Our credit-based recession indicator is rising with a probability of a downturn through Q126 at 47%,' analysts said.
Meanwhile, consumer delinquency rates are said to be climbing, especially in student and mortgage loans.
Despite these pressures, the firm sees potential offsets, including credit usage and continued upper-income spending. UBS maintains a defensive positioning in credit, favoring higher quality and consumer non-cyclicals given tighter spreads compared to 2022.
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