Switzerland's economic outlook for the upcoming year is cautiously optimistic, with economists at Raiffeisen Switzerland projecting a modest GDP growth of 1.3% for 2025. This is slightly higher than the anticipated 1.1% growth for the current year.
Despite this positive outlook, the Swiss economy is expected to face ongoing challenges from trade policies and the economic conditions of neighboring countries, which may prevent it from reaching its full potential.
The chemicals and pharmaceuticals sector is expected to be a key driver of growth, along with an improved outlook for consumer spending due to employment growth in the service sector and rising real wages.
The anticipated inflation rate for 2025 is expected to be 0.5%, indicating a potential easing of price pressures. However, there are uncertainties in the economic landscape, particularly regarding U.S. trade policy under President Donald Trump.
The lack of clarity surrounding U.S. tariffs poses a significant risk to global business sentiment, especially in Europe. Tariffs primarily targeting China could have a positive impact on the European economy, but tariffs targeting Europe would likely have detrimental effects.
Switzerland's economic performance is also being influenced by the political and economic uncertainties in its neighboring countries, Germany and France. The current situation in Germany is particularly concerning, as it has already begun to affect Swiss companies, especially those in the automotive supplier and industrial sectors.
France's economic influence also plays a role in shaping the euro to franc exchange rate, which is critical for Swiss exporters.
While the service sector continues to experience growth, there are signs of declining labor demand in certain sectors. This divergence in labor demand highlights the uneven recovery across different industries.
Raiffeisen's forecast for the euro-franc exchange rate suggests stability around the 0.92 mark, which is crucial for Swiss businesses relying on exports to the Eurozone.
In light of the economic conditions, Raiffeisen anticipates further cuts to interest rates by the Swiss National Bank. A reduction of 25 basis points is expected in the upcoming decision, bringing the key interest rate down to 0.75%.
The chief economist foresees a continued trend towards lower interest rates, with the possibility of even negative rates emerging by 2026. Fluctuations in the Swiss franc exchange rate could influence inflation and economic growth, thus playing a pivotal role in shaping monetary policy decisions.
While the supply of capital for corporate investments remains healthy, the cost of financing has increased, leading to a need for diversification in funding sources. This shift in the financing landscape could impact businesses' investment strategies.
The real estate market is also expected to be affected by falling interest rates, with yields projected to rise back to the 230 to 240 basis points range, attracting interest from institutional investors. However, a return to the pre-2020 boom conditions in real estate is not expected.
As Switzerland faces economic challenges, the interplay of domestic growth prospects and external uncertainties will be crucial. The resilience of key sectors and a cautious approach to monetary policy will be essential in navigating the complexities of the global economy.
Swiss businesses and consumers will need to remain vigilant and adapt to the evolving economic environment, considering the potential for further interest rate cuts and a stable exchange rate.