In its recently published Global Market Outlook, UBS has outlined five potential scenarios that could significantly impact the global investment landscape by 2025 and 2026.
1. A Republican Victory and the “Red Sweep”
The first scenario envisions former President Donald Trump reclaiming the White House, with Republicans gaining control of both chambers of Congress, though without a filibuster-proof majority in the Senate.
While fiscal policy for 2025 is already largely determined by existing agreements, major shifts could occur post-2025. Many of the tax cuts introduced in 2017’s Tax Cuts and Jobs Act (TCJA) are set to expire by the end of that year. UBS analysts expect most of these tax cuts to be extended but not in their entirety. The analysts predict that continuing the bulk of the TCJA would increase the fiscal deficit by around $4.4 trillion after 2028, which would account for roughly 7% of GDP.
In addition, a potential corporate tax cut, estimated to cost about $600 billion over ten years, might be offset by repealing certain provisions in the Inflation Reduction Act. However, the overall effect of this policy mix, combined with more aggressive tariffs on China, may not be enough to stimulate substantial economic growth.
2. Democratic Victory and the “Blue Sweep”
In the second scenario, Vice President Kamala Harris wins the presidency, with Democrats regaining control of the House and potentially keeping their majority in the Senate. The Harris administration has proposed raising the top tax rate to 39.6% for high earners, a policy in line with the Biden administration’s earlier proposals.
This tax policy would likely balance out some of the revenue lost from extending tax cuts for lower-income groups, reducing the deficit by an estimated $400 billion. Overall, the deficit under a Harris-led administration could widen by about $2 trillion over the next decade. While tax increases on higher incomes and corporations would help offset some costs, the economy could experience a slight slowdown in growth, with GDP growth expected to dip by 0.3 percentage points in 2026 and 0.1 percentage points in 2027 compared to UBS’s baseline.
3. U.S. Recession
The third scenario considers the possibility of a U.S. recession, though UBS notes that this risk could decrease if the Federal Reserve delivers on anticipated easing measures.
Signs of economic strain are evident, as household debt defaults on credit cards and auto loans have reached levels not seen since the 2008 financial crisis. Business activity is also mixed, with some sectors such as construction and investment slowing significantly. Consumer spending, which has thus far sustained growth, could finally weaken, triggering a cycle of lower corporate investment, reduced hiring, and declining consumption.
In response to a recession, the Fed may need to drastically lower interest rates, potentially returning them to near-zero levels.
4. Rising Tariffs
A fourth scenario envisions higher U.S. tariffs on China, with former President Trump proposing a 60% tariff on Chinese goods and a 10% tariff on imports from the rest of the world.
UBS estimates that, if implemented, these tariffs would not take effect until the second half of 2025 for China and 2026 for other countries. Past evidence suggests that U.S. consumers and businesses bore the brunt of the tariffs imposed in 2018 and 2019, with the volume of Chinese imports falling sharply. New tariffs could further reduce imports from China, potentially shrinking its market share in the U.S. by 22% in the first year and by 36% over five years.
5. Central Banks Easing Prematurely
The fifth and final scenario considers the risk that central banks may ease monetary policy too soon, with over 70% of central banks already starting to cut interest rates despite persistent core inflation.
This early easing could slow down progress in controlling inflation, particularly if global growth picks up. If the U.S. economy remains resilient and eurozone consumption strengthens, combined with additional stimulus from China, global growth could exceed expectations, potentially leading to inflationary pressures.
