KOF continues to expect gross domestic product (GDP) growth of 1.4 per cent, excluding major international sporting events, for this year. The outlook for 2026 has worsened owing to the deterioration in competitive conditions caused by US tariffs and ongoing heightened economic uncertainty.
Trade policy turmoil is currently shaping the economic landscape. The increase in tariffs on Swiss exports to the US means noticeably worse competitive conditions – even compared with exports from the EU on lower tariff rates – and continued elevated economic uncertainty. Although the pharmaceutical industry is still acting as a stabiliser here, there are downside risks that could reduce its positive contribution in the medium term.
KOF's forecast is based on the assumption that some Swiss exports to the US will remain subject to a 39 per cent import tariff, while goods from the EU will attract a US tariff of 15 per cent. In addition, the flat-rate import tariffs of 50 per cent on steel, aluminium and copper products introduced by the United States worldwide will be maintained. KOF's forecast also assumes that the pharmaceutical industry will have to reduce its prices in the United States by 10 per cent. However, it is predicted that its exports to the US will remain tariff-free.
Sharp downward revision of GDP forecast
KOF's baseline scenario for 2025 remains unchanged from its summer forecast, with GDP growth excluding major international sporting events at 1.4 per cent (1 per cent unadjusted). Although the first half of the year performed better than was expected in June, the second half of the year will be significantly weaker than previously forecast. The forecast for next year's GDP growth adjusted for sporting events has been lowered by 0.6 percentage points to 0.9 per cent (1.3 per cent unadjusted), while GDP growth of 1.6 per cent (1.2 per cent unadjusted) is expected for 2027.
In addition to its baseline forecast, KOF has calculated a positive scenario in which Switzerland would be subject to the same trade tariffs as the EU from October onwards. In this scenario, the burden on exporters and the assumed uncertainty would be significantly lower, which would substantially mitigate the negative impact on the economy as a whole, with GDP growth of 1.5 per cent this year, 1.2 per cent next year and 1.8 per cent the year after.
Foreign trade coming under pressure
Although the outlook for foreign trade is clouded by US trade policy and is likely to weaken momentum in the medium term, the trend to date has been characterised by advance orders to avoid tariffs. The decline in exports is now likely to be sharp in the second half of the year. Based on the first half of the year, nevertheless, exports will still rise by 2.8 per cent and imports will grow by 3.3 per cent this year. In addition to the effects of tariff policies, exports of goods excluding pharmaceuticals are on a downward trajectory owing to weaker global economic demand, which is likely to continue and be further exacerbated by tariffs in the medium term. Growth rates will then be lower over the next two years, with increases of 2.1 per cent in 2026 and 2.5 per cent in 2027.
Swiss labour market cooling noticeably
Following years of employment growth, the Swiss labour market is currently experiencing a period of weakness. KOF expects employment to grow by only 0.3 per cent (summer forecast: 0.6 per cent) in its baseline scenario for 2025. This is the lowest growth rate since 2020. Although full-time-equivalent job growth is likely to pick up in the course of 2026, at 0.5 per cent it will remain below average compared with this year. The unemployment rate is forecast to rise to 3.2 per cent by 2026 according to Switzerland's State Secretariat for Economic Affairs (SECO) and to 5 per cent according to the International Labour Organization (ILO). It is expected to remain at an elevated level in 2027.
Although wage growth will remain subdued as a result of the cooling labour market, real wages will rise slightly overall owing to low inflation. In the positive scenario the labour market would perform better and the unemployment rate is likely to rise to 3.1 per cent.
Domestic economy losing momentum
Uncertainty caused by the tariff shock and the weaker labour market outlook are weighing on corporate capital spending and household consumption. Although population growth and low inflation are boosting purchasing power, this is not enough to compensate for the cooling labour market. Consequently, KOF has revised slightly downwards its forecast for private consumption for 2025 and 2026: growth rates now stand at 1.4 per cent. This equates to decreases of 0.1 percentage points and 0.2 percentage points respectively compared with the last forecast. The rise in consumer spending in 2027 is likely to be slightly higher at 1.6 per cent.
Equipment investment declined in the second quarter owing to one-off effects. In addition, weak earnings, low capacity utilisation and heightened uncertainty suggest that capital spending will remain weak. Investment expenditure will rise by only 0.6 per cent this year. The intensification of the trade conflict and the industrial recession are acting as a drag on investment activity, which will stagnate next year, rising by just 0.2 per cent. It is not until 2027 that it is likely to regain momentum and increase by 2.0 per cent.
Inflation forecast remains low; SNB's key interest rate still at zero
KOF continues to expect inflation of 0.2 per cent for 2025, 0.5 per cent for 2026 and 0.6 per cent for 2027. The main drivers here are rents and domestic services, while domestic goods, imports and energy prices are having a dampening effect. Inflation in recent months has been at the lower end of the range that the SNB defines as price stability. A strong Swiss franc, weaker wage growth and slowing inflationary pressures on rents could push inflation even lower. Consequently, KOF does not expect to see any further interest-rate moves by the Swiss National Bank (SNB) during the forecast period, meaning that its key interest rate will remain at 0 per cent throughout this time.
Forecasting uncertainty remains high
The uncertainty around US trade policy remains very high. This could increasingly cause companies to relocate production abroad. If pharmaceutical products are also subject to tariffs in future, the impact on the Swiss economy might be considerable. Upside risks arise from a potential easing of the trade conflict, for example as a result of successful negotiations to reduce US tariffs.