OECD Economic Outlook, Volume 2025 Issue 2

Switzerland

Real GDP will grow by 1.1% in 2025 and strengthen to 1.2% in 2026 and 2027. Higher-than-expected import tariffs and the uncertain external environment are weighing on export growth and investment, only partly offset by a boost to private consumption from declining inflation. A cooling labour market will keep inflation low in 2025 before picking up slightly in 2026 and 2027, while remaining well within the central bank’s target range of 0-2%.

The monetary policy stance will continue to support growth, with the policy rate expected to remain at zero to counter disinflationary pressures. Fiscal policy is becoming slightly more accommodative, driven by higher social spending. Budget consolidation measures under consideration to comply with the debt-brake rule should be carefully assessed to avoid potential adverse side-effects on long-term growth. Swift ratification of the revised agreements with the European Union would reduce uncertainty and help limiting trade disruptions.

Uncertainty is weighing on economic activity

After above-average growth in the first quarter of the year, driven by export front‑loading in anticipation of higher tariffs, quarterly GDP growth slowed to 0.2% in the second quarter, adjusted for sporting events. The chemical and pharmaceutical industry contracted sharply as exports fell by 3.4% compared to the previous quarter. According to an early estimate, real GDP has contracted 0.5% in the third quarter, adjusted for sporting events, and indicators of labour utilisation and recruitment difficulties are showing signs of a cooling labour market. Consumer prices increased by 0.1% over the year to October, as the Swiss franc continued to strengthen.

Many goods exports from Switzerland to the United States have faced a 39% tariff since August. Pharmaceuticals remain exempted, but the watchmaking, machinery and chocolate industries have been severely affected. Prospects are expected to improve in early 2026 as Switzerland and the United States finalise an agreement that would result in US tariffs declining to 15%. Revised cooperation and trade agreements with the EU were agreed in May 2025 with the aim of stabilising and developing Switzerland’s access to the EU Single Market. The package has yet to be ratified.

Switzerland

1. The series represent the movements in the Swiss franc exchange rate against the currencies of Switzerland’s most important trading partners (the real indexes are the nominal indexes adjusted for price developments in Switzerland and abroad).

Source: FSO; and SNB.

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Switzerland: Demand, output and prices

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Fiscal policy is becoming more accommodative amid monetary easing

The central bank lowered the policy rate by 0.25 percentage points to 0% in June to counter disinflationary pressures. This brings the cumulative monetary easing to 175 basis points since March 2024. Yet, the domestic currency has continued to appreciate, partly driven by safe-haven flows. The central bank is expected to hold the policy rate unchanged at zero until economic growth converges to potential in 2027. The general government account is expected to post a small surplus in 2025 that will narrow in 2026 as the 13^th monthly pension payment approved in March 2024 comes into effect. Moreover, the government has extended the short-time work compensation scheme from 12 to 18 months as of August 2025 and from 18 to 24 months in November 2025 to cushion the impact of higher U.S. trade tariffs on employment. The fiscal projections assume that the proposed increase in the VAT rate by 0.7 percentage points in 2027 will be approved to finance higher social spending. Gross public debt is projected to decline to about 37% of GDP by 2027.

Growth will remain moderate

Real GDP, not adjusted for sporting events, is projected to grow by 1.1% in 2025 and 1.2% in 2026 and 2027. Growth will be mostly driven by domestic consumption, supported by declining inflation and more favourable financial conditions. The contribution of net exports to growth will turn negative in 2025 amid higher trade tariffs, weaker global growth prospects and a strong domestic currency. Major sporting events will partly offset lower external demand in 2026, and the new agreement with the United States to lower tariffs to 15% is expected to bolster the recovery of exports in 2026. Heightened uncertainty will weigh on investment throughout 2026 and 2027. Currency appreciation, lower energy prices and a cooling labour market will help keep consumer price inflation well within the central bank’s 0-2% target range. Prolonged global uncertainty could lead to an even stronger Swiss franc, further damaging export prospects and turning inflation negative.

Strengthening ties with trading partners would enhance economic resilience

Fiscal consolidation will be required at the federal level to ensure compliance with the debt-brake rule but planned expenditure cuts should carefully balance consolidation needs with short- and medium-term growth objectives, based on cost-benefit analysis of public spending. Growth-enhancing spending and efficient programmes should be preserved as much as possible. Swiftly ratifying the EU‑Switzerland agreements would ensure continued market access and help reinvigorate exports. Similarly, strengthening ties with other trade partners, by signing new free trade agreements and deepening existing ones, would improve economic resilience. Harmonising regulations across cantons would increase domestic competition and generate additional economies of scale.