Switzerland lowers GDP forecast as President Trump’s tariffs weigh on economy

The Swiss government on Thursday cut its economic forecast for 2026, saying the Trump administration’s tariffs were putting a “huge burden” on the country’s industry.

Officials maintained their forecast for Switzerland’s economy to grow by 1.3% this year, but noted that this level of economic growth was “well below average” for the country. Next year, gross domestic product (GDP) growth is expected to slow to 0.9%, a downward revision from the previous forecast of 1.2% growth in 2026.

“The U.S. tariff increase has made the outlook for the Swiss economy even more uncertain,” officials said in a news release Thursday.

Switzerland is an export-driven economy, and by 2024 the United States will be the largest foreign export destination for Swiss products. Back in August, Switzerland was slapped with a 39% tariff on goods sent to the United States, one of the highest country-specific tariffs imposed by the Trump administration, after a Swiss delegation could not reach an agreement with U.S. officials.

The country’s biggest exports include watches, medicine, and precious metals, but the country is also famous for luxury goods, chocolate, and skin care products. Branded and patented drugs are subject to a new 100% tariff upon entry into the United States, unless the manufacturer has a production facility in the United States or is building a production facility in the United States.

Swiss officials said in an update on Thursday that under current trade conditions, global demand for Swiss products and services is expected to increase only “slightly” in the coming quarters.

“The current trade policy environment poses special challenges for Switzerland,” they said. “Additional tariffs place a heavy burden on affected sectors and export-oriented businesses, and are expected to have significant knock-on effects across the economy. In addition, persistent uncertainty is also hampering economic activity.”

The government also warned that most of the US’ other trading partners were granted lower tariff rates, putting Swiss exporters at a competitive disadvantage in the US market. The White House’s trade policy has had a major impact on the future trajectory of the Swiss economy.

“More favorable developments could be expected if Switzerland reaches an agreement with the United States or if international trade policy is relaxed,” they said. “But overall, downside risks are now predominant.”

Beyond President Trump’s tariffs, demand for the Swiss franc has also added to Switzerland’s economic and diplomatic woes, with the currency, generally seen as a safe-haven asset in volatile times, rising more than 12% this year amid lingering uncertainty. The strengthening franc has put downward pressure on prices and is a headwind for the country’s central bank as policymakers struggle to avoid disinflation and negative interest rates.

Officials announced this on Thursday. swiss franc It continues to play a role in Switzerland’s economic challenges and warned of the potential for further appreciation of the franc.

“A deterioration in the international environment cannot be ruled out,” he said, noting that risks related to market corrections, global sovereign debt and the geopolitical situation persist.

“If any of these risks materialize, we would expect further upward pressure on the Swiss franc.”

“The risks to the Swiss economy are increasing,” Charlotte de Montpellier, senior economist for France and Switzerland at ING, told CNBC on Thursday.

“Our exposure to the US market is large, amounting to 4% of GDP,” de Montpellier said in an email. “I estimate that the direct impact of increasing US tariffs to the current 39% on Swiss GDP will be around 0.86% in the first two years.”

Mr de Montpellier recently revised down his growth forecast for Switzerland in 2026 to 0.8%, almost half the rate he had predicted earlier this year.

“We believe the risks are tilted to the downside, and the likelihood of negative growth in the quarter has increased significantly,” he said. “The Swiss economy has long been supported by pharmaceutical exports, but it is now facing a period of increased uncertainty, which will lead to a sharp slowdown in the momentum of economic activity.”

Melanie de Bono, senior European economist at Pantheon Macroeconomics, said on Thursday that the Swiss government’s new forecast was in line with her own.

“The decline in merchandise exports and the decline in investment, as shown by the monthly nominal merchandise trade statistics, mean that we expect the Swiss economy to enter recession in the second half of this year, despite the (Swiss National Bank’s) interest rate cuts, which will ultimately lead to lower interest rates faced by businesses, given the increased uncertainty,” he told CNBC via email. “We believe Swiss GDP will decline by 0.2% sequentially in both the third and fourth quarters.”

Georges Kahn, CEO of Swiss luxury watchmaker Breitling, told CNBC’s Carolyn Ross on Wednesday that the U.S. tariffs are “terrible news” for Switzerland.

“A 39% tariff is scary,” he said. “Nevertheless, I believe that we will find a solution. Swiss politicians understand very well how to deal with businessmen. The Trump administration, they are businessmen, not classical politicians… But I am confident that in the coming weeks we will find a much better solution than 39%.”

Kahn said Breitling had increased its prices globally to offset the impact of the tariffs, noting that luxury brands have more flexibility in this regard.

“We raised prices by 4% in the U.S., but we can’t just raise prices by 39% for consumers, so we’ve also increased prices around the world to balance the cost of tariffs,” he said. “Thankfully, we have some pricing power in our price range. I don’t think it will dramatically impact us. In fact, we are growing.”