Despite recent slowdowns in the US economy, UBS believes that the likelihood of a “Roaring ’20s” outcome is actually on the rise. The bank states that the “roar is getting louder” and that long-term trends are still aligning with their criteria for such a prosperous decade. These criteria include real GDP growth averaging 2.5% or better, inflation of 2-3%, an unemployment rate around 4%, and the Federal funds rate at 3-4%, all of which are currently on track in the US.
While recent economic strength in the US is attributed to cyclical factors, unexpected immigration boosting labor supply, and stronger-than-expected fiscal legislation providing a temporary tailwind, UBS sees signs of structurally higher growth taking root. The bank’s analysis focuses on four supply-side megatrends: a capital spending boom, surging AI adoption, stronger business dynamism, and productivity gains, which they are tracking with a “roar score.”
According to UBS, the likelihood of a Roaring ’20s regime is marginally more likely than it was previously, as strong household finances, increased AI investment, surging capital expenditures, and continued risk capital availability all contribute to this outlook. Although productivity growth has not yet accelerated, progress in disinflation and the potential for a less restrictive monetary policy by the Fed further increase the chances of a prosperous decade.
A wildcard in this scenario is the future path of fiscal policy
