Sluggish Expansion in the Swiss Economy - Slower Economic Growth for Switzerland Due to Imposed U.S. Tariffs
The Swiss economy has taken a hit in the second quarter of the year, with exports in the chemical and pharmaceutical sector falling by 5.3 percent due to the impact of US tariffs. This slowdown is particularly noticeable in export-reliant sectors like pharmaceuticals and watches, though the effects vary across industries.
In the pharmaceutical sector, which accounts for about half of Swiss exports to the US, products are currently exempt from US tariffs as part of a reciprocal agreement. However, there is a serious risk that tariffs on pharmaceuticals could be introduced soon, with proposed rates potentially reaching a staggering 250%. Such a move would significantly worsen the economic impact on Switzerland.
Watches and high-end luxury items, on the other hand, face the full brunt of the tariffs, with rates as high as 39%. Given their high exposure to the US market, these sectors are direct victims of the tariffs, losing competitiveness relative to EU and UK goods, which benefit from lower tariffs (15% and 10%, respectively).
The economic consequences of these tariffs are far-reaching. Swiss exporters and industries linked to the US market, including watches and machinery, face increased costs and loss of market share. Swiss business groups have expressed deep concerns, warning that maintaining such high tariffs risks effectively annihilating Swiss export business to the US.
The Swiss National Bank is closely monitoring inflation and economic growth in light of these tariffs. While the tariffs raise downside risks and could pressure the SNB to lower policy rates (potentially into negative territory), no immediate rate cuts are expected within 12 months.
The slowdown in the Swiss economy is attributed to the effects of tariffs, particularly in the pharmaceutical industry. Adrian Prettejohn, an economist at London-based market research firm Capital Economics, made this observation. In April, there was a sudden increase in Swiss exports to the US in the watches sector due to importers building up their inventories before the imposition of the 39% tariff by US President Donald Trump, which began on August 1.
In an effort to mitigate the impact of the tariffs, the Swiss government is currently negotiating a lower tariff rate with the US. However, the proposed pharmaceutical tariffs pose a serious threat to the competitiveness of the Swiss pharmaceutical industry, one of Switzerland's most important trade partners.
Sources:
- Swissinfo
- Reuters
- Capital Economics
- Bloomberg
- The Commission, consulted on the draft Council decision on the conclusion of the agreement on the European Economic Area, is closely watching the potential introduction of tariffs on pharmaceuticals, as it could have significant implications for the Swiss economy, particularly the finance sector, given the large amount of capital invested in the pharmaceutical industry.
- The proposed tariffs on pharmaceuticals and other export-reliant sectors like watches, due to their impact on business competitiveness and economic growth, have become a hot topic in Swiss politics and general-news, with business groups urging for a swift resolution, fearing that maintaining such high tariffs could lead to the deterioration of the Swiss economy.
