Switzerland also faces spillover effects from weaker global activity. Slower growth in the euro area and diminished demand for intermediate goods all weigh on Swiss producers even if they never directly pay higher duties.
Investment on hold and cooling labor market
Uncertainty is freezing parts of the investment cycle. Tariffs have created a hard-to-quantify downside risk that is deterring capital expenditure until the policy outlook becomes clearer. We estimate that investment contracted by 1.3% in 2025 and anticipate a further decline of 0.4% in 2026.
Employment grew at a steady yet slow 0.6 to 0.7% year on year in the first half of 2025, but those numbers do not yet reflect the impact of tariffs. Surveys now point to weaker hiring activity ahead. Registered unemployment has been edging up since late 2023 and is likely to continue rising into 2026 before gradually falling again provided GDP growth improves.
Wage inflation has slowed to below 1%. Companies are cautious about raising fixed costs while tariff uncertainty hangs over export orders. We expect wage growth to bottom out by the end of the year and rise toward 1.4% in 2026.
Low inflation, monetary policy on standby
Inflation is hovering near 0% year on year. The strong franc, cheaper imports and low energy prices have pulled inflation to the floor of the SNB’s target range. Core inflation has also eased. A slow return toward 1% is likely as energy effects fade.
Reacting to subdued price pressures, the Swiss National Bank (SNB) cut rates to zero in June 2025 and has since held them steady. Negative interest rates remain a possibility if the Swiss franc appreciates further or deflationary pressures intensify. Conversely, should GDP growth be solid and inflation climb above 1%, small rate increases are possible in 2027 and 2028.
Broader European economy
Switzerland’s challenges unfold alongside a wider European economy facing similar but a less intense impact from effective tariffs. While US tariffs have clearly influenced euro area trade flows, the shock has been more dispersed and easier to absorb.
Similar to the Swiss experience, euro area GDP growth has been volatile because of tariff front-loading, particularly in Ireland where multinationals contributed to a steep 18% rise in GDP growth in Q2 2025. But the core of the European economy continues to expand at a modest pace.
Germany and Italy remain the weakest performers, burdened by structural issues, soft investment and an especially harsh exposure to global manufacturing. Poland and Spain continue to post the strongest growth among the largest European economies. As a whole, the euro area is expected to grow 1.4% in 2025, easing to 1.1% in 2026. Estimates indicate that tariffs could cut about half a percentage point off GDP growth in the euro area in 2026, less than the impact projected for Switzerland where a drag on 2026 GDP growth of 0.9 of a percentage point is anticipated, assuming a 15% sector-specific tariffs for pharmaceuticals and semiconductors.
Mirroring the Swiss agreement, the US-EU deal sets a 15% tariff ceiling on most exports. But this ceiling protects a wider set of industries across a much larger market. The EU steel and aluminum sector still faces a 50% rate, but key categories such as aircraft, generic pharmaceuticals and natural resources are exempt.
The euro’s appreciation, supported by monetary easing in the United States and a firmer fiscal outlook in Germany, adds to competitiveness challenges for European exporters. Often positively correlated with the euro, the strong Swiss franc is similarly amplifying competitive pressures and compounding tariff effects.
From a Swiss perspective, weaker euro area demand, flatter export growth and ongoing trade tensions all pose risks, especially for companies tightly linked to European value chains. The broader trade environment remains fragile, and any setback in Europe would weigh on Switzerland’s export-led sectors and overall growth outlook.
Swiss economic outlook: a gradual recovery
Switzerland’s economic activity will remain subdued. The peak drag from tariffs is expected in 2026, especially if sector-specific pharmaceutical tariffs take effect. A firmer euro area recovery, more stable global demand and lower interest rates should support a rebound from 2027 onwards.
