Solid economic fundamentals help cushion the growth headwinds

The Swiss economy experienced a growth slowdown to +0.8% in 2023, attributed to the past real appreciation of the Swiss Franc, weak external demand and reduced investment. However, a gradual recovery in external demand, coupled with lower inflation and easing monetary policy, is expected to boost growth to +1.5% in 2025. Growth is supported by strong structural foundations in private consumption, including a resilient labor market and a more dynamic industrial sector. Yet, downside risks currently outweigh upside potential as uncertainty surrounding international economic and trade policy is very high. Notably, insolvencies in Switzerland are still slightly increasing and are on historically high levels. After an increase in 2024, insolvencies are expected to stabilize in 2025 and then decline by -8% in 2026.

Inflation is decreasing even in the face of elevated service costs which put upward pressures on core inflation. On the one hand, the disinflationary trend is being supported by lower prices for goods and energy, aided by last year's nominal appreciation. On the other hand, rising rents and persistently high service inflation are moderating this decline. As wage growth has slowed, pressures on the services sector will ease in 2025. We anticipate an inflation rate of +0.9% in 2025 supported by lower electricity prices and easing price pressures from the services sectors, followed by +1.1% in 2026. As a result, Swiss inflation is expected to remain within a manageable range and below the target of the central bank.