Global Uncertainty Casts a Shadow

The Swiss economy, traditionally a powerhouse of exports, is bracing for a slowdown.General uncertainty, especially stemming from international trade tensions, is expected to impact key economic indicators. These include growth, inflation, and unemployment.

UBS economists have adjusted their gross domestic product (GDP) forecast for Switzerland. They project a 1.0% increase for this year, adjusted for sporting events. this follows a 0.9% rise the previous year. Looking ahead, Swiss growth is anticipated to accelerate to 1.2% in 2026.

The Trump Effect: Lingering Trade Tensions

The specter of trade wars, even with temporary reprieves, continues to loom large. The customs duties, initially announced and subsequently suspended by former U.S. President Donald Trump, have already left their mark. According to UBS experts,these actions have already caused damage to the global economy.

The extent of this damage hinges on the resolution of trade agreements. The bank experts in the three keys in a study estimated that The extent of damage will depend on the capacity and speed with which the Trump management will be able to conclude trade agreements. The longer the uncertainty persists, the greater the risk of a significant economic downturn.

Domestic Demand to the Rescue?

Amidst global headwinds, the Swiss economy is expected to lean on domestic demand for support. Foreign trade is unlikely to contribute significantly to growth. The sluggishness in the eurozone, coupled with slowdowns in China and the United States, is projected to dampen external demand.

Negative Interest Rates: A Possibility

The prospect of a global recession looms if trade relations fail to normalize. Specialists from UBS have warned that If trade shoudl not normalize in the coming months, a global recession cannot be excluded. Switzerland, they caution, would not be immune to such a downturn.

A glimmer of hope exists in the form of Germany’s recovery plan and increased defense spending in Europe. These measures could potentially bolster growth in the coming year.

Job Market Concerns

The economic gloom is expected to impact the job market. The unemployment rate is projected to rise steadily, from 2.4% in 2024 to 3.0% in 2025 and 3.2% in 2026.

Economist Maxime Botteron has cautioned that relocations, particularly in the pharmaceutical sector, could further strain the Swiss job market. Though, he also noted that The economic fundamentals of the Swiss job market, marked by the persistent shortage of skilled labor, do not risk being turned upside down by customs duties.

Botteron added that After reaching an average of 25%to 30%, their highest level in 100 years in the United States, American customs duties should stabilize around 10-15%, with the exception of China.

Inflation and Monetary Policy

Inflation is expected to decline from 1.1% in 2024 to 0.2% this year, before rising to 0.5% the following year. This trend is anticipated to prompt the Swiss National Bank (SNB) to lower its key interest rate in June, from the current 0.25% to 0%.

A renewed escalation in the trade war could strengthen the Swiss franc and compel the SNB to push its key rate into negative territory.