UBS has thrown cold water on the US economic outlook. According to the report, UBS points out in its latest research that beneath the seemingly robust growth data, the foundation of the US economic expansion is rapidly narrowing: the marginal improvements in investment, consumption, and employment are almost entirely tethered to the single theme of artificial intelligence. Once AI investment slows or asset prices correct, the current expansion will lose its core pivot. UBS models indicate that the probability of a US recession within the next 12 months is approximately 50%. If the AI investment boom cools, the US economy will rapidly lose its primary support. However, UBS maintains cautious optimism for the long-term outlook, with potential GDP growth expected to rise to about 2.5%, benefiting from reduced demographic drag and productivity improvements. Simultaneously, tariff impacts are reshaping the inflation structure as a "slow-moving variable." The US effective tariff rate has jumped from 2.5% at the start of the year to over 13%, an amount equivalent to a stealth tax hike of about 1.1% of GDP. UBS believes this is not a one-time shock but will persistently push core inflation higher for years to come, keeping it above the Federal Reserve's 2% target long-term. At the policy level, fiscal and monetary policies are locked in a classic "hedging-hindrance" dynamic. In 2026, approximately $55 billion in tax rebates from the OBBBA will provide a brief boost to consumption in the second quarter, but this stimulus is expected to fade quickly thereafter. Meanwhile, although the Fed plans to continue cutting interest rates, it is constrained by cost-push inflation driven by tariffs, leaving limited room for easing. Against this backdrop, UBS's assessment is not radical but exceptionally sharp: the US is not yet in a recession, but this is an expansion with an extremely low margin for error. The fate of economic growth hinges on whether AI can transition from a capital market narrative to genuine, broad-based productivity gains within the next 18 months.
Growth persists, but the engine is highly concentrated From the investment perspective, the unipolar characteristic of the US economy is already quite evident. Over the past four quarters, AI-related equipment investment grew by approximately 17%, covering computers, information processing equipment, and electronic components; meanwhile, non-AI equipment investment fell by about 1%. In non-residential construction investment, data center construction contributed roughly 0.7 percentage points of growth, while all other areas combined dragged growth down by about 7 percentage points. UBS calculations show the following contributions to GDP growth:
AI investment contributed approximately 0.5 percentage points. Consumption by high-income groups contributed approximately 0.8 percentage points. All other economic activities combined contributed only 1.1 percentage points.
Residential investment has contracted in four of the past five quarters, and non-residential construction investment has shrunk for six consecutive quarters. If AI is stripped away, the US economy appears closer to "low-speed stagnation" than robust expansion.
Consumption "resilience" stems from wealth concentration, not income improvement The consumption data also presents a clear illusion. While real disposable income grew by only 1.5%, real personal consumption expenditures increased by 2.6%. UBS notes that this divergence does not stem from wage or employment improvements but from the highly concentrated release of the stock wealth effect. In the second quarter of 2026, equities' share of total household wealth rose to a record high of 35%, with stock market performance itself largely driven by AI and tech sectors. The result: consumption by high-income households is significantly amplified, while middle- and low-income groups continue to bear the brunt of inflation and tariff erosion. This implies that US consumption has become significantly more dependent on asset prices; any stock market volatility could quickly remove this consumption buffer.
Tariffs: A brewing "stealth tax hike" On the inflation front, UBS presents a view that significantly differs from the market's optimistic expectations. The US effective tariff rate has climbed to 13.2%, nearing levels seen during the Smoot-Hawley Tariff Act era in the 1930s. Based on import structure calculations, the actual effective rate is about 12.2%, equivalent to imposing a tax burden of roughly 1.1% of GDP on the economy. Unlike traditional shocks, tariffs have not immediately compressed imports but are slowly permeating the price system through costs. UBS expects tariffs to cumulatively drag real GDP growth down by about 0.8 percentage points over the next four years, with the main impact concentrated in 2025-2026. Inflation is already reflecting this trend: core PCE has rebounded noticeably since mid-year, and UBS expects it to peak in Q2 2026 and hover around 3% long-term. This is a classic case of cost-push inflation and lies at the root of the Fed's policy constraints.
Employment data "stabilizes the surface," but underestimates underlying weakness Although the unemployment rate remains at a relatively low level, UBS believes it no longer accurately reflects labor market conditions. Excluding healthcare and social assistance, nonfarm payrolls have declined by an average of 41,000 per month over the last four months. The unemployment rate has risen to 4.5%, while the U-6 broad measure of unemployment has reached 8.43%, significantly higher than pre-pandemic levels. Multiple survey indicators are concurrently weakening: corporate hiring expectations are down, the manufacturing ISM has fallen below 40, and commercial loans are down 2% year-on-year. UBS points out that this is a demand-side-led, chronic employment contraction—more insidious than one-off layoffs and harder to reverse quickly.
OBBBA: Short-term support, unlikely to alter medium-term trend The OBBBA will provide temporary support in 2026. UBS expects roughly $55 billion in tax rebates to be concentrated in the second quarter, providing a significant boost to consumption for that quarter. However, this stimulus has a clear "front-loaded" characteristic. UBS estimates that the positive contribution of fiscal policy to GDP will turn negative by 2027, with the deficit ratio remaining above 6% of GDP. Fiscal policy acts more like a shock absorber than a new engine for expansion.
Monetary policy walking a tightrope UBS expects the Fed to cut rates twice in 2026, bringing the policy rate to 3.00%–3.25%. However, in the context of tariff-driven inflation, the room for easing is limited, and policy divergence may intensify. Concurrently, the Fed has shifted towards balance sheet expansion, using reinvestments and reserve management purchases to stabilize financial conditions. It is worth noting that under the combination of "high AI concentration + cost-push inflation," the investment rationale for gold is changing. Compressed real rates, reduced policy visibility, and growth's deepening reliance on a single narrative are transforming gold from a cyclical safe-haven tool into a structural asset for an era of high uncertainty.
Conclusion This is not a recession that has already occurred, but an expansion period that is highly dependent on a single engine. The true test for the US economy over the next 18 months lies in this: can AI complete the transition from narrative to structural reality before the next shock arrives?
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