The current forecast is being driven by changes in U.S. tariff policy and by the war being waged by the United States and Israel against Iran.
The current economic forecast continues to be overshadowed by high trade-related and geopolitical uncertainty. At the centre of trade policy risks is the reordering of U.S. tariff policy.
The geopolitical environment has also deteriorated markedly as a result of the war being waged by the United States and Israel against Iran since late February. The conflict has pushed up oil and gas prices and disrupted a key trade route, the Strait of Hormuz. In its baseline forecast, KOF assumes that the economic impact on Switzerland will remain limited and that energy prices will normalise after an initial shock.
Higher oil prices would further slow growth
In addition to the baseline forecast, KOF analyses an alternative scenario with persistently higher energy prices. In this scenario, oil prices settle at around USD 90 per barrel and remain elevated throughout the forecast period, around 30% above the baseline. While no severe shortages are assumed, persistently higher energy prices would place an additional burden on production, supply chains and household spending.
According to KOF estimates, real GDP growth excluding major sporting events would fall to 0.7% in 2026 and 1.5% in 2027 under the oil price scenario. By the end of 2027, GDP would stand 0.6% below the baseline scenario. Employment growth would also weaken, with around 20,000 fewer full-time equivalent jobs being created. The unemployment rate would rise to 3.1% in 2027, which is 0.1 percentage points higher. Inflation is expected to increase from 0.3% to 0.6% in 2026 and from 0.6% to 0.8% in 2027.
Global economy expands only moderately
The global economy continues to expand at a moderate pace. Economic activity in the euro area has recently improved somewhat. In Germany, modest growth impulses are coming mainly from public spending and stronger order books in manufacturing. In the United States, growth has recently lost momentum and stalled, as reflected in revised labour market data. Even so, the outlook remains cautiously positive. In China, weak growth continues to be driven mainly by investment and foreign trade.
KOF therefore expects the European economy to strengthen slightly over the forecast period. Overall, however, impulses from abroad are likely to remain limited for the Swiss economy.
Domestic demand provides support – investment and foreign trade remain subdued
Against this backdrop, Swiss output is expected to remain below potential for the time being. Private consumption remains a key pillar. It has recently been robust and is expected to stay resilient over the forecast period, supported by low inflation and stable wage growth despite a weaker labour market. Government consumption, by contrast, is likely to increase only moderately. The federal government's planned consolidation measures under the 2027 budget relief package will weigh on growth.
Investment activity remains weak overall. High economic policy uncertainty, weak profitability and low capacity utilisation continue to weigh on investment in machinery and equipment. While survey data have recently pointed to some stabilisation, a broader recovery is not expected until later in the forecast period. Construction investment is showing initial signs of recovery, supported by a favourable interest-rate environment as well as rising planning applications and building permits for housing.
Foreign trade also remains clouded by uncertainty. Goods exports have recently been driven primarily by the chemicals and pharmaceuticals sector, while more cyclical industries such as watches, machinery and electronics continue to suffer from weak international demand. The recent tariff relief vis-à-vis the United States has improved the outlook for parts of industry, but this benefit is partly offset by heightened geopolitical uncertainty. Overall, KOF expects export growth to remain moderate. As imports are likely to grow faster than exports, net trade is expected to make only a small contribution to growth.
Labour market stabilises only gradually – inflationary pressure remains low
The Swiss labour market remained subdued in 2025, but showed initial signs of stabilisation towards the end of the year. Leading indicators suggest that conditions have improved slightly in recent months. After a weak 2025, employment is expected to return to moderate growth during 2026. At the same time, the unemployment rate is likely to edge up until mid-2026 before easing somewhat thereafter. Real wages are expected to continue rising over the forecast period.
Inflationary pressure remains low overall. Headline inflation has hovered just above zero for some time, and core inflation is also at a very low level. Rents and domestic services remain the main drivers, while domestic goods and imports continue to exert downward pressure. The appreciation of the Swiss franc is adding further disinflationary pressure. KOF therefore expects the Swiss National Bank (SNB) to keep its policy rate at 0% throughout the forecast period.
Downside risks have increased
Risks to the forecast remain substantial and are tilted predominantly to the downside. Although the U.S. Supreme Court ruling has curtailed the U.S. government's room for manoeuvre in imposing new tariffs, further trade policy measures cannot be ruled out. In particular, pressure from the U.S. government to lower pharmaceutical prices could weigh heavily on Switzerland's pharmaceutical industry. It also remains unclear whether investment commitments made by Swiss companies in the United States could lead to investment being relocated abroad and, in turn, dampen investment activity in Switzerland.
Internationally, the U.S.–Israeli war against Iran raises the risk of persistently high oil and gas prices and further disruption to global supply chains. Any additional conflict-driven appreciation of the Swiss franc would further undermine the competitiveness of Swiss exporters. Other risks stem from high public debt in several advanced economies and from potential disruption in labour and financial markets arising from developments in artificial intelligence and digitalisation.
Upside risks, by contrast, include an easing of trade and geopolitical tensions, stronger productivity gains from artificial intelligence and digitalisation, and more effective fiscal stimulus in Europe.