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UzbekistanEconomic growth still moderate in 2025
The Swiss economy grew moderately in 2024 despite the eurozone’s weak performance and increasing global political uncertainty. Relatively strong private consumption and licence income from the EUFA EURO 2024 fixtures and the Olympic Games in Paris had a noticeable impact in Switzerland. The economy should remain robust. Private consumption should post stable growth and remain an important pillar of overall growth. Furthermore, although inflation is likely to fluctuate somewhat over the course of the year, it should never reach 1% and be significantly lower than in the last three years. Both energy and food prices fell in the second half of 2024, ensuring a low starting point in 2025. In addition, the mortgage benchmark interest rate (“hypothekarischer Referenzzinssatz”) set by the Swiss government to regulate the market and guide banks, was lowered in early March of 2025 from 1.75% to 1.5%, i.e., its lowest level since December 2023. It is the first time since March 2020, that the government has decreased the rate, which could have an impact on all new rents (60% of households are tenants), which should benefit from a lower rent. Second, consumption will be also influenced by further rising costs for compulsory health insurance. The average premium will rise by 6% in 2025. This is, however, lower than the increase in 2024, which averaged out at 8.7%. In the meantime, nominal wages should rise further by 1.4% in 2025. While the wage growth rate will be lower than in the last two years (1.7% and 1.6%, respectively), the inflation rate will also be lower, resulting in a noticeably higher real wage growth rate than in the previous years (1.0% instead of 0.5% in 2024), which will improve purchasing power.
Lower inflationary pressure had already driven the Swiss National Bank (SNB) to cut its leading interest rate four times in 2024, from 1.75% down to 0.5%. In March 2025, another rate cut of 25 basis points followed, bringing the interest rate level down to 0.25%, which is deemed the neutral level. As we do not expect monetary policy to become expansive, we expect no further rate cuts this year. Although the lower rate should support the credit-driven financing of corporate investment, the high global geopolitical uncertainty, and especially the potential trade conflict with the US, could keep companies in wait-and-see mode. Nevertheless, positive effects should come from the construction sector. While commercial construction will remain on hold as well, residential construction is set to make a slow comeback from a low level. The leading indicators and higher permit numbers hint in this direction. In addition, civil construction – mainly in public transportation, infrastructure and the health sector – remains an important driver for construction. Projects include, for example, the extension of the Gotthard tunnel with a second tube (total project costs total CHF 2.1 billion), capacity expansion of the railway stations in Geneva and Lausanne, and the extension of the Alpine solar plant projects (Solar Express). There are also plans to enlarge the University of Zurich Clinic and other buildings on the university grounds.
The outlook for Swiss large scale foreign trade is particularly difficult to predict due to the uncertain US trade policy. Switzerland had a trade balance surplus of CHF 34.25 billion with the US in 2023, which is the highest trade surplus with any trading partner (4.3% of GDP). Pharmaceutical exports play an important role and would be heavily affected by tariffs. In the absence of any significant escalation of the US trade conflict, foreign trade is likely to develop moderately with strong pharmaceutical exports, while global demand for machinery, electronics and watches will probably continue to decline. Stronger demand for financial services and robust tourism income should partly offset this. A significant negative factor affecting the real growth of the Swiss economy is the absence of any major international sporting events in 2025. Major sporting event organisers (e.g., the FIFA, UEFA and IOC) support the economy through their licence income. As major (men's) football events and the Olympic Games only take place every two years, this will drag on the economy in 2025.
Healthy public accounts, but more social expenditures are on the horizon
Public accounts continue to show a small surplus for the total government accounts thanks to stronger results by the cantons and the social security system, which more than offset an increased federal deficit. From 2026, the basic pension will include a 13th monthly payment. However, it remains unclear how this is to be financed (either by higher revenues or a budget deficit). The additional costs amount to CHF 4.1 billion in 2026 (0.5% of GDP in 2024). In any case, public debt remains very low and gives no cause for concern.
The country consistently posts a current account surplus thanks to the considerable goods surplus, which in 2024 stood at 14% of GDP. Although finance and insurance, together with sporting licences, play an important role in the external accounts, the services and the primary income balances (e.g., income from investments abroad and cross-border workers) structurally post a small deficit. In addition, there is the structural deficit of the secondary income (transfer) balance, which is the result of foreign workers who work in Switzerland and send home part of their income (403,000 employees in 2024, accounting for 7.6% of total employees). In 2025, any improvement in the goods trade surplus and higher income from financial services should be levelled out owing to the absence of key sporting events. This should keep the current account balance roughly unchanged.
Ample Swiss assets abroad, thanks to recurrent current account surpluses, allow the country to enjoy a substantial positive net foreign investment position (111% of GDP at the end of September 2024), the size of which varies according to stock market prices and the USD/CHF exchange rate.
Stable domestic political situation, but the new trade agreement with the EU could complicate matters
The Swiss political system is extremely stable owing to the country’s tradition of political consensus. The main decisions are taken by referenda. The Federal Council, i.e., the government, comprises seven ministers. The position of President is elected from this group for one year and alternates. Since 1959, the Federal Council has been composed according to the so-called “magic formula”, with the first three parties in the general election receiving two seats each, and the fourth party one seat. To reach the Federal Council, a “new” party must finish in the top four at two consecutive elections, which is rare. Accordingly, the party composition of the council has not changed with the last general election in October 2023. The right-wing national-conservative SVP, the social democratic SP and the liberal FDP have two seats, while the Christian-democratic Center party has one seat. The next general election is scheduled for 2027.
Relations between Switzerland and the European Union have improved. The main problem lies in their trade agreements, which also include parts of migration and employee protection rules. The Bilateral Agreements I and II of 2002 and 2005, and a total of 120 individual agreements currently apply. In 2008, negotiations began on an all-encompassing trade agreement that would summarise and bring up to date the existing individual agreements. However, after years of negotiations, the Swiss government decided in 2021 not to sign the final agreement as it was clear that it would have been rejected in a referendum. The role of the European Court of Justice as a dispute settlement mechanism that could limit Switzerland’s sovereignty was rejected. The preservation of the high level of wage and employee protection in Switzerland was a major point of contention stemming from the fear of unbridled migration in the EU, as was the possible receipt of Swiss social assistance by EU citizens. Relations cooled, but negotiations resumed in March 2023 and were finalised in December 2024 with a new agreement. The new agreement now includes a safeguard clause on migration. Free movement of persons between the EU and Switzerland may be restricted it if causes serious economic and social problems. If the EU does not agree to the restriction, a neutral arbitration court will decide the outcome. The power of the ECJ will also be limited to maintain Switzerland’s sovereignty. If EU law conflicts with Swiss law, an arbitration tribunal will also decide the matter. It does not have to refer to the ECJ to interpret EU law.
The new agreement has yet to be ratified. A referendum in Switzerland is planned for the end of 2025 or the beginning of 2026. Approval is still uncertain, as the SVP, in particular, which was the strongest party in the last elections, opposes closer ties with the EU. The Federal Council has therefore decided to unbundle the overall package and create four partial agreements (free movement of persons and land transport, electricity market, food safety and health). These partial agreements can then be voted on individually in referendums. Nevertheless, it is unclear how the EU will react if only parts of the agreement are approved.
