US recession looming? Warning signs for America as Oxford Economics sounds alarm over falling tech investment

United States' heavy dependence on tech investment leaves its economy vulnerable if the sector slows, Oxford Economics has warned. Lead economist Adam Slater warned that without the tech sector, the US GDP would have ‘barely grown’ this year, reports the Fortune.

He added that a downturn could push growth below 1% in 2026 while also weighing on global output. While the exposure isn’t as extreme as during the dotcom crash, Slater cautioned that "US households’ record stock holdings could increase the risk of financial strain if valuations decline.” Though economists differ on the trajectory of the US economy, they have agreed that the he tech sector—namely its investment—has been the engine driving the US growth.

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America’s economy and the tech sector

“The tech sector has been the key driver of recent U.S. growth, with surging stock prices and heavy investment in equipment and software,” wrote Oxford Economics’ lead economist, Adam Slater, in a note shared with Fortune.

“But this leaves the US vulnerable if tech suffers a downturn—without tech investment, U.S. GDP would have barely grown in H1 2025, and business investment would have actually declined.”

Oxford Economics analyzed two scenarios stemming from a potential tech-sector downturn, where investment slows and stock prices decline simultaneously. In the first scenario—a U.S.-focused slowdown with limited global spillover—domestic GDP growth would drop to 0.8% in 2026, which Slater describes as “flirting with recession.” Global growth would also be affected, slowing from a projected 2.5% to 2% in the same year.

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The second scenario considers broader international equity shocks, similar to levels seen in 2002, with volatility persisting over multiple quarters. This scenario compounds the effects of a U.S.-centric downturn, pushing world GDP down to 1.7% in 2026. Beyond the U.S., economies such as Mexico, Canada, and several Asian nations—including Vietnam, Taiwan, South Korea, and Malaysia—would face substantial negative impacts.

“In all these economies, GDP is lowered 1.5% or more by 2027 compared to our baseline,” Slater adds.

Is US going into recession?

A report by MarketWatch citing Moody Analytics chief economist Mark Zandi suggests that US economy is on the verge of entering a damaging contraction, and many states are witnessing recession already. Zandi estimates that 22 states, along with the District of Columbia, are grappling with ongoing economic weakness and job losses that are expected to continue.

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California and New York are currently struggling to maintain stability, and Zandi warned that a downturn in either state could tip the national economy into a recession. He expressed surprise that Georgia is already in a recession, pointing to a sharp decline in domestic migration, partly driven by high housing costs.

In contrast, Pennsylvania is performing better than expected, bolstered by strong sectors in education and healthcare, Zandi noted. The economist said that economic policy is the reason for the weakness along with tariffs imposed by US President Donald Trump, which has disrupted the supply chain. The tariffs have caused a uncertainty, leading companies to halt expansion plans and disrupt supply chains. Additionally, the lack of labour-force growth this year has negatively impacted the economy.

Furthermore, federal job reductions associated with the Trump administration’s Department of Government Efficiency, formerly headed by Elon Musk, have caused Washington, DC, and nearby states to experience the most severe downturn of any region.

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