Trade war, geopolitical risks top central bank concerns in UBS annual survey

Investing.com -- Escalating trade tensions and geopolitical instability have overtaken economic volatility as the primary concern among global central banks, according to UBS’s 31st Annual Reserve Management Seminar Survey.

The report, based on responses from nearly 40 central banks collected between May and June 2025, underscores a significant shift in risk perception.

“Trade war escalation ranks #1 with 73%,” UBS wrote, with a further escalation in military conflicts cited by 51% of participants. Economic volatility, which traditionally tops the list, dropped to third place, noted by 49% of respondents.

In a marked change from previous years, central banks now view political and geopolitical factors as the central threat to financial stability. UBS highlighted that concerns around “the weaponization of FX reserves” rose to 49%, up sharply from 32% in 2024 and 14% in 2023.

The survey also found that most reserve managers expect inflation to remain sticky. While 54% anticipate U.S. headline CPI falling to 2–3%, 40% believe it will linger between 3–4% over the next year.

Additionally, 83% expect Fed policy rates to stay between 3–4%, and 43% forecast a U.S. recession by 2026.

On U.S. politics, UBS said respondents were wary of a second Trump administration, with 65% citing potential erosion of Federal Reserve independence as a key concern. Nearly half also fear a deterioration in the rule of law and data quality.

In terms of asset allocation, gold is said to remain the top pick for risk-adjusted returns over five years.

Emerging market debt and green bonds also reportedly drew interest, though UBS said central banks appear to be slowing their move into equities. The dollar remains the dominant global reserve currency, but the euro and renminbi are gaining ground.

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