Swiss Growth Outlook Rises on Tariff Easing, Inflation Dips Below 0.2%

Switzerland has raised its economic growth forecast for 2026 to 1.1%, a significant upward revision from its September projection of 0.9% according to Bloomberg. This adjustment follows the resolution of its trade dispute with the U.S., which had previously led to a 39% tariff on key Swiss exports such as watches and machinery. The preliminary agreement, which reduced surcharges to 15%, is expected to stabilize the Swiss economy and restore growth momentum.

The State Secretariat for Economic Affairs (SECO) has also revised its inflation outlook downward. It now anticipates a modest rise in consumer prices of just 0.2% next year down from a prior forecast of 0.5%. This projection is even weaker than the Swiss National Bank's (SNB) latest estimates, highlighting the subdued inflationary environment. The SNB has maintained its key interest rate at 0%, the second consecutive meeting without policy change.

The revised trade deal with the U.S. has helped restore confidence in Swiss economic resilience. The country experienced its first quarterly contraction since 2023 in the July-September period, largely due to the high tariffs. With surcharges now reduced, analysts are optimistic that Swiss exports will rebound, particularly in sectors like pharmaceuticals, which have so far been exempt from U.S. duties according to Morningstar.

This is expected to translate into stronger domestic output and improved business investment.

Risks to the Outlook

Despite the positive outlook, uncertainties remain high due to global economic and trade policy developments according to Bloomberg. SECO has noted that factors such as ongoing tariffs, financial market volatility, and geopolitical tensions could impact the Swiss economy. In particular, any escalation in global trade conflicts could reintroduce pressure on the Swiss franc, which is already a strong currency due to its safe-haven status and the SNB's cautious monetary policy.

The SNB has maintained a neutral stance on its policy rate, signaling that it is unlikely to ease further into negative territory. Policymakers have indicated that the bar for reintroducing negative borrowing costs is very high. This stance has been reinforced by the recent unexpected drop in inflation, which reached 0% in November. The SNB now projects inflation of 0.3% for 2026, a significant reduction from its earlier forecast of 0.5%.

The Swiss franc has seen mixed reactions in response to the SNB's decision to hold rates steady. The USD/CHF pair has fallen to near 0.7990 in the immediate aftermath of the announcement, indicating some short-term strength in the Swiss currency. Analysts suggest that the SNB is more likely to intervene in the foreign exchange market than to cut rates further. This is because low inflation in Switzerland is largely driven by falling import prices, which can be influenced by currency interventions.

Karsten Junius, chief economist at J. Safra Sarasin, noted that the SNB has sufficient capacity to act in the foreign exchange market if needed. The bank has already intervened once this year in response to U.S. tariff announcements. He expects that the SNB will continue to prioritize maintaining price stability while managing the risks of an overvalued Swiss franc.

Looking ahead, the SNB has scheduled its next policy meetings for March, June, September, and December of 2026. These meetings will be closely watched for any further updates on the inflation outlook and potential adjustments to monetary policy.

Broader Implications for the Swiss Economy

The resolution of the U.S. trade dispute is expected to have a positive ripple effect across key sectors of the Swiss economy. Business surveys have already shown early signs of recovery, with improved sentiment in manufacturing and services. The SNB has upgraded its GDP growth forecast for 2025 to just under 1.5%, up from a previous range of 1% to 1.5%. For 2026, it now expects growth of around 1%, compared to a slightly lower projection before the trade deal.

However, the Swiss economy remains vulnerable to global headwinds. The SNB has emphasized that the main risk to the outlook is the development of the global economy. While many countries have shown more resilience than expected, U.S. tariffs and trade policy uncertainty could still weigh on global economic momentum. Analysts are closely monitoring how these factors might impact Swiss exports and domestic demand in the coming months.