The economy KOF sees high downside risks for the Swiss economy
The economic researchers at ETH Zurich (KOF) have confirmed their growth forecasts for Switzerland in the current year. According to this, the local economy will continue to develop at a rather subdued pace in 2025. The forecasts are also subject to considerable downside risks.
26.03.2025, 10:57
SDA
Specifically, in its spring forecast for the current year 2025, the KOF expects real gross domestic product (GDP, adjusted for sporting events) to grow by 1.4%, the same as in the last forecast in December.
However, this is only based on the assumption that the international trade conflict does not escalate further, as emphasized in a press release on Wednesday. Due to the geopolitical strategy of the new US administration, uncertainty is currently unusually high. The increased trade policy uncertainty is having a particularly negative impact on the investment plans of Swiss companies and households.
Germany package helps
While the international trade conflict is slowing down growth, the expected fiscal stimulus in individual EU countries - particularly in Germany - should boost the economy, the KOF continues. This would improve the outlook for the Swiss economy. Accordingly, it is forecasting GDP growth of 1.9% for 2026, which is slightly higher than the last forecast (+1.7%). With its latest GDP forecast for 2026, the KOF is also slightly higher than most other forecasters.
According to the KOF, the manufacturing sector, particularly suppliers to the defense industry, and industry-related services would benefit most from the fiscal programs. This should stimulate investment in equipment in particular via foreign trade and indirectly also private consumption. Larger infrastructure projects and fiscal stimulus from Europe should also directly or indirectly support construction investment.
Downside risks predominate
However, the KOF emphasizes the high level of uncertainty surrounding the forecast. "As it is still unclear which of the trade policy measures threatened by the Trump administration to date will ultimately be implemented and which additional measures could follow, the current forecast is subject to greater uncertainty than usual," writes the KOF.
In any case, analyses show that an expansion of the trade conflict could entail considerable downside risks for the local economy. The main downside risk is that the US government introduces further tariffs against other countries and products, including retaliatory tariffs as countermeasures.
The KOF sees a further risk in the fact that the fiscal stimulus in Europe will not be effective or will be delayed. In addition, geopolitical conflicts such as the war in Ukraine or the Middle East could escalate, with repercussions for commodity prices and global trade.
Labor market and inflation
The KOF economists are relatively confident about the labor market - at least if the above-mentioned risks do not materialize in full. Employment and the number of people in work are likely to increase in line with GDP growth over the next few years, the KOF forecasts. The unemployment rate will also rise only slowly and will soon peak at 3%. The KOF also expects real wages to rise by 0.9 percent this year and 0.6 percent next year.
In terms of inflation, the Zurich-based economists are forecasting rates of 0.5 percent for this year and 0.6 percent for next year. Most recently (in February), it was 0.3 percent and has been below 1 percent for the sixth month in a row. Following the recent reduction in the Swiss National Bank's (SNB) key interest rates by 25 basis points to 0.25%, the KOF does not expect any further interest rate cuts in the forecast period.
