UBS Adds Global Crisis as Possible Downside Scenario

Wary of the potential for the escalating trade war to materially destabilize the macro environment, UBS has revised its assessment of possible downside scenarios, including the risk of a global crisis.

In the first quarter earnings report of UBS, the Swiss banking giant revised its list of expected credit loss (ECL) models, economic scenarios that could play out as well as their weightings. This was due to prevailing economic and political conditions, most notably from the rapid escalation of the trade war under US President Donald Trump.

As of 31 March 2025, there was a high degree of geopolitical and macroeconomic uncertainty, including uncertainty relating to tariffs that could be introduced by the US government after that date and the economic consequences thereof, the bank said.

The actual announcing of the tariffs in April 2025 was subsequent to the reporting date. UBS has assessed the situation based on the uncertainties that existed on the reporting date and has exercised judgment.

Adjusted Predictions

As a result, UBS has adjusted its forecasts with the replacement of the stagflationary geopolitical crisis scenario with a «global crisis scenario» (15 percent chance) which targets risks such as sovereign defaults, low interest rates and significant emerging market stress. The «mild debt crisis scenario» has also been replaced with a mild stagflation crisis scenario (30 percent chance) with assumptions of rising rates alongside declines in GDP and equities.

It applies a 50 percent chance to its baseline scenario of relatively stable economic conditions, down from 60 percent at the end of 2024.

UBS is closely monitoring the current market situation, and it will carefully assess developments, potentially revisiting the narratives and weightings in the second quarter of 2025, the bank added.