Investing.com -- As the U.S. economy and equity markets thrive halfway through the decade, UBS analysts suggest 2025 will be pivotal in determining whether the “Roaring ‘20s” economic regime can continue through the decade.
In their latest macroeconomic assessment, UBS highlights that while the economy is currently roaring, the sustainability of this momentum hinges on key factors.
Defining the "Roaring ‘20s" as a period of steady GDP growth (2.5% or higher), moderate inflation (2–3%), and policy-driven investment, UBS notes that current conditions meet these criteria.
However, interest rates—currently above 4% for the 10-year Treasury yield and 3–4% for the fed funds rate—remain higher than UBS's ideal "roaring" range.
The analysts attribute much of the economic strength to earlier fiscal stimulus, policy-driven private investment, and immigration, but they caution that tailwinds are weakening. For the economic boom to persist, productivity growth must accelerate.
“Productivity gains need to be at or above 2% for growth, inflation, and rates to meet the regime criteria,” UBS writes, while noting that recent productivity gains have yet to reflect the full impact of AI and emerging technologies.
UBS remains cautiously optimistic about 2025, citing the growing adoption of AI and rising "animal spirits" in the economy as reasons to believe in sustained productivity gains.
However, risks loom. “The regime will likely ‘break’ if inflation re-accelerates and rates stay higher for longer,” the analysts warn, adding that a potential equity bubble could undermine the long-term outlook.
Ultimately, UBS emphasizes that supportive policy and productivity growth are critical to extending the Roaring ‘20s.
“2025 is more likely to be a ‘make’ than a ‘break’ year,” they conclude, though uncertainty surrounding policy, inflation, and rates keeps the range of outcomes wide.