UBS Economics-European Economic Comment _Switzerland Growth deceleration ...-117504016

ab28 August 2025Global ResearchEuropean Economic CommentSwitzerland: Growth deceleration in Q2 2025, contraction aheadSwiss GDP growth decelerated in Q2 due to tariffs and payback from front-loadingSwiss growth slowed in Q2 as tariffs and a reversal of Q1's strong front-loading dragged down exports. The full GDP release confirmed the flash estimate for sports-event adjusted GDP growth (i.e. underlying growth dynamics, see background box) at 0.1% q/q (1.6% y/y). Not sports-event adjusted GDP also grew 0.1% q/q, meaning there was no sports event effect in Q2. The press release notes a marked decline in exports (-4.1% q/q), mirrored on the production side by a contraction in manufacturing (-2.4% q/q). Despite the partial unwind of Q1 front-loading, we estimate Swiss YTD exports to the US (excl. precious metals) are still c. 25% (14%) above the volumes over the same period in 2023 (2024) (Figure 1Sector vulnerabilities to tarif shock), implying that more export weakness might still be ahead, even without higher US tariffs. Fixed investment also declined in Q2 (-0.6% q/q), partly due to weaker capital goods demand and partly reflecting volatile categories such as airplanes and R&D. In contrast, private (0.3% q/q) and public consumption (0.9% q/q) grew stronger than last quarter. Activity in the services sector was relatively resilient, in particular in trade, hospitality and public administration.Weak Q3 ahead due to 39% US tariffsDespite the marked deceleration from a strong 0.7% q/q in Q1, the 0.1% q/q outcome was above our expectation for a moderate contraction in Q2. We were surprised to the upside by public and private consumption as well as net exports (due to a stronger decline in imports). We therefore leave our annual forecast for not sports event adjusted GDP in 2025 unchanged at 0.9% y/y (sports event adjusted: 1.3%) despite the introduction of 39% US tariffs on Swiss exports in August. Yet we revise down our 2026 forecast by 0.1pp to 1.3% y/y (sports event adjusted: 0.9%). These numbers imply a 0.2pp GDP reduction over four quarters, in line with our trade model derived estimate for the growth impact of a 10% increase in the weighted average tariff rate. The August tariff increase from 10% to 39%, with pharma and gold exemptions, raised the weighted average tariff rate by roughly that scale to 16.2%, according to our calculations based on Swiss 2023 trade data (Figure 14Sector contribution to weighted average tarif rate). The SNB's GDP forecast from June is for sports-event adjusted growth of 1 to 1.5% in 2025 and 2026Fiscal response focusing on short-time workWe are not factoring in discretionary fiscal stimulus in response to the tariff shock. While allowing for increased public spending through automatic stabilizers during economic downturns, Switzerland's debt brake sets relatively tight constraints for unfunded spending programs. In fact, the government is currently consolidating expenditure to meet the debt brake requirements over th