KOF expects growth in Switzerland to remain rather subdued in 2025
Published: Tuesday, Dec 17th 2024, 10:20
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According to economic researchers at ETH Zurich (KOF), the Swiss economy will continue to develop at a rather subdued pace in 2025. In particular, the continuing weak outlook for Europe is slowing down the domestic economy.
As a result, the KOF is now only expecting real gross domestic product (GDP, adjusted for sporting events) to grow by 0.9 percent this year instead of the previous 1.1 percent, according to a statement on Tuesday. The forecast for 2025 has also been reduced to 1.4 percent from 1.6 percent. For 2026, the KOF remains at 1.7 percent.
Including sporting events, which distort Swiss GDP due to license payments to the sports associations based here, growth rates of 1.3 percent are forecast for 2024 (previously: 1.5 percent), 1.0 percent for 2025 (1.2 percent) and 2.1 percent for 2026.
International environment acts as a brake
The slowdown in Europe, particularly in Germany and France, continues to act as a brake. The already weak international economy deteriorated further in the fourth quarter.
According to the KOF experts, the weak demand is likely to continue until the middle of next year, after which a slight improvement in economic demand can be expected. The export-oriented part of the Swiss economy is also suffering from the strong franc. The domestic economy is at least holding steady thanks to strong consumption.
While investment in equipment has continued to fall across the board, contrary to KOF expectations, the pharmaceutical industry remains the growth driver in Switzerland. Meanwhile, construction investment should continue to increase next year and the year after.
Inflation falls more sharply
According to the KOF, the decline in inflation is stronger than expected. Inflation expectations for 2025 and 2026 have been adjusted again and now stand at 0.5% and 0.6% respectively (previously 0.7% each). Meanwhile, the international economic trend is likely to have an increasingly negative impact on the Swiss labor market.
The Swiss National Bank (SNB) is expected to make a further interest rate cut in March 2025 to 0.25 percent following last week's 50 basis point cut in the key interest rate. Slower wage growth together with a reduction in the reference interest rate should reduce inflationary pressure on domestic services and rents.
As usual, the KOF emphasizes the risks for the forecast. In addition to the geopolitical risks, the forecast has so far taken into account the minimal effects of the Trump administration's threatened tariffs. However, these could turn out to be higher and affect more countries than assumed. However, a possible boom due to tax cuts and deregulation in the USA could have a supporting effect, according to the augurs.
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