Luck Runs Out for Switzerland’s Economy as U.S. Tariffs Loom

Switzerland’s economy is losing momentum as growth nearly stalled in the second quarter, expanding just 0.1%. The slowdown marks a sharp reversal from earlier strength, when pharmaceutical exports surged ahead of looming U.S. tariffs. Now, economists warn that the country faces the prospect of a mild recession in the second half of the year.

The tariff shock has added urgency to the Swiss National Bank’s (SNB) policy response. After cutting rates to zero in June, pressure is mounting for further easing, with forecasts pointing to a possible move into negative territory. Inflation remains muted at just 0.2% year-to-date, leaving policymakers room to act if activity weakens further.

Tariffs Threaten Key Export Sectors

The United States has imposed a 39% tariff on most Swiss goods, the highest ever levied against a developed economy. The measure stunned officials in Bern and drew criticism of the government’s strategy in trade talks. Sectors such as machinery, luxury goods, and metals are highly exposed, while pharmaceuticals—dominated by Novartis and Roche—remain the linchpin of resilience.

Swiss authorities are holding talks with major pharmaceutical companies to explore ways to mitigate the damage, including potential increases in U.S. investments to offset tariff risks. While pharma exports may soften the blow, broader trade-dependent industries face sharper headwinds.

Outlook Remains Fragile

Analysts expect Switzerland to weather the immediate impact, but growth forecasts have been trimmed. Economists now see GDP expanding around 1.4% in 2025 and 1.1% in 2026, with tariffs potentially shaving off up to 0.6 percentage points if no resolution is reached. Much will depend on whether Bern can secure concessions from Washington and whether global demand steadies.

Longer term, the combination of trade frictions, slowing industrial output, and an overvalued currency could erode Switzerland’s position as one of Europe’s most resilient economies.

Tips for Traders

• Watch the SNB’s rate path, as a move into negative territory would impact bonds and the Swiss franc.

• Track USD/CHF, with tariff pressure likely to weaken the franc in the near term.

• Follow Novartis and Roche closely—their resilience could offset broader market weakness.

• Monitor exposed industries such as watchmaking, machinery, and metals, where tariff effects may be more immediate.

• Stay alert to diplomatic talks, as any sign of compromise with Washington could quickly reprice risk.