The war waged by the United States and Israel against Iran, and the resulting higher oil prices, are weighing more heavily on the economic outlook than assumed in the previous forecast. Against this backdrop, the KOF Swiss Economic Institute is lowering its economic forecast: real GDP growth adjusted for sporting events is expected to amount to 0.8% in 2026 (previously 1.0%) and 1.5% in 2027 (previously 1.7%).
As a result of the war waged by the United States and Israel against Iran, the Strait of Hormuz was effectively closed to shipping in recent months. Oil prices rose to around USD 118 per barrel at the end of April before falling back to just above USD 90 by the end of May. In its baseline forecast, the KOF Swiss Economic Institute assumes that energy prices will continue to decline in line with oil price futures as the situation gradually eases, falling back below USD 80 by the end of the forecast period.
Swiss economy grows more weakly as a result of the oil price shock
Elevated energy prices and high uncertainty are weighing on consumers' willingness to spend. Private consumption stagnated in the first quarter of 2026, and consumer sentiment fell to a level comparable to the low seen during the tariff shock in April 2025. Indicators for the current quarter point to a subdued recovery, but private consumption is likely to remain dampened by persistent inflationary pressure, a higher propensity to save and weak labour market conditions.
Investment activity remains weak overall. High geopolitical uncertainty, a deteriorated earnings situation and low capacity utilisation are weighing on equipment investment. Construction investment is likely to remain on a moderate growth path, although rising construction prices as a result of higher energy costs represent a risk factor. With a gradual easing of the geopolitical situation, the propensity to invest is expected to pick up noticeably again only in 2027.
Weak foreign demand and a strong Swiss franc are putting pressure on the export industry. The business situation remains mixed: the pharmaceutical and chemical industries are developing positively, while cyclical sectors such as the watchmaking and machinery industries remain subdued. Higher energy prices and persistently weak foreign demand are likely to cloud the outlook for goods trade for the time being; a broader recovery is expected only once the geopolitical situation gradually eases and energy price pressure subsides.
Persistently high oil prices as a significant downside risk
In addition to the baseline forecast, the KOF Swiss Economic Institute analyses an alternative scenario in which the conflict persists despite recent efforts and the oil price rises to USD 180 per barrel by the end of 2026. According to estimates by the KOF Swiss Economic Institute, growth in gross domestic product (GDP) adjusted for sporting events would amount to 0.5% in 2026 and 1.0% in 2027 in this scenario – a reduction of 0.3 and 0.5 percentage points, respectively, compared with the baseline scenario. Inflation would stand at 1.3% in 2026 and 0.9% in 2027, but would thus remain within the target range of the Swiss National Bank (SNB). Employment growth would weaken significantly, corresponding to around 19,000 fewer full-time equivalent jobs being created.
Global economy under pressure
The global economy is expanding only modestly. In the euro area, the first quarter of 2026 was weaker than expected. Sentiment indicators have recently deteriorated markedly across all countries and sectors. Economic momentum in the euro area is likely to remain weak for the time being owing to higher energy prices, more restrictive financing conditions and persistently elevated uncertainty. In the United States, the economic weakness caused by the government shutdown at the end of 2025 was partly offset in the first quarter. As a net exporter, the US economy is only directly affected by the oil price shock to a limited extent. While investment is benefiting from the AI boom, private consumption is losing momentum noticeably. Despite a strong first quarter, driven by robust foreign trade figures in the wake of the AI boom, China is likely to lose growth momentum over the remainder of the year owing to weaker global demand.
Rise in inflation remains moderate – SNB leaves policy rate at zero
Inflation, as measured by the Swiss consumer price index (CPI), has risen from 0.1% in February to 0.6%. The inflation forecast for 2026 has been revised upwards from 0.3% to 0.6% compared with the previous forecast. The main drivers are higher oil prices and travel costs as a result of the Iran war. Owing to rather weak aggregate demand, second-round effects are likely to remain relatively subdued. In addition, the strong franc is expected to keep external price pressure low. The inflation forecast for 2027 remains unchanged at 0.6%. The KOF Swiss Economic Institute does not expect the SNB to make any interest-rate moves over the entire forecast period; the policy rate is likely to remain at zero.
No imminent improvement in the labour market
The Swiss labour market largely stagnated in 2025. Although the first quarter of 2026 points to slightly better momentum, leading indicators have so far shown no significant improvement. Employment in full-time equivalents is expected to grow by 0.5% in 2026 and 0.7% in 2027. The unemployment rate is likely to rise to 5.1% according to the International Labour Organization (ILO) definition and to 3.1% according to the State Secretariat for Economic Affairs (SECO) definition in 2026, before initially remaining at an elevated level in 2027. Real wages are expected to continue increasing over the forecast period thanks to continued positive nominal wage growth, although growth will be weaker than in previous years owing to higher inflation.
Downside risks predominate
The baseline forecast assumes a relatively timely settlement of the Iran war. A continuation and renewed escalation of the conflict represent downside risks. In addition, trade and geopolitical risks remain elevated, including possible additional US tariffs against Switzerland as well as potential shifts in investment by Swiss companies to the United States. Upside risks arise from the fiscal stimulus provided by European defence programmes and infrastructure packages, as well as from higher productivity gains through the use of artificial intelligence. A faster de-escalation of the Iran war compared with the baseline scenario would also represent an upside risk, as energy prices and uncertainty could decline earlier and more rapidly.