Average Economic Growth for Switzerland. Low inflation. Real Estate still strong.

Good morning, and welcome to your Swiss business update for Friday, April 25th, 2025. Today, we're looking at the latest economic forecasts, the central bank's moves, developments in the banking sector following the Credit Suisse integration, and trends in the property market.

Turning first to the economy. Forecasts suggest Switzerland is heading for moderate, below-average growth over the next two years. Both the State Secretariat for Economic Affairs, SECO, and the KOF Economic Institute project GDP growth adjusted for sporting events at around 1.4% for 2025, slightly down from earlier estimates, with about 1.6% expected in 2026. The Swiss National Bank offers a similar outlook, predicting growth between 1% and 1.5% this year. This follows a stronger-than-anticipated finish to 2024, with 0.5% growth in the fourth quarter, but this was heavily reliant on the robust performance of the pharmaceuticals and chemicals sector, which masked stagnation in other industries. This reliance highlights a potential vulnerability should the pharma sector face headwinds, such as the threatened US tariffs which could particularly hit Swiss exports.

On a positive note, inflation remains very low. Forecasts put the 2025 average at just 0.3% to 0.5%, well within the SNB's target range. Inflation in February stood at only 0.3% year-on-year. This low inflation environment provides the central bank with significant flexibility. The labour market appears stable, with modest job growth expected , though unemployment may rise slightly to average around 2.8%. Real wages are also projected to increase modestly. However, global trade tensions and geopolitical uncertainty remain key risks.

Reflecting these low inflation figures and economic risks, the Swiss National Bank cut its key policy rate by 25 basis points to 0.25% back in March. Most analysts don't expect further cuts immediately, anticipating rates may hold steady through 2025. This proactive move, contrasting with potentially slower easing elsewhere, aims to support domestic demand. It could also slightly weaken the Swiss franc, potentially benefiting exporters. In the markets, Swiss 10-year government bond yields recently touched near two-month lows around 0.42%, reflecting global growth concerns. The benchmark SMI stock index was trading around the 11,800 level earlier this week.

In the banking sector, the integration of Credit Suisse into UBS continues under the close watch of the financial regulator, FINMA, which conducted around 40 on-site reviews at UBS last year related to the merger. FINMA itself is reorganizing to strengthen supervision, creating a new risk expertise division and aiming for more direct on-site checks, partly in response to rising cyber threats – reports of attacks jumped 30% last year. The debate over "Too Big To Fail" continues, with authorities considering tougher rules, including potentially much higher capital requirements for the enlarged UBS, a move stemming from the Credit Suisse collapse. UBS CEO Sergio Ermotti has pushed back, arguing excessive regulation could harm Switzerland's competitiveness. This highlights a core tension between ensuring stability and maintaining the global standing of the financial center. Separately, leaked correspondence suggests FINMA has also investigated private bank Reyl over potential anti-money laundering weaknesses.

Finally, the Swiss real estate market shows continued strength in the premium segment. Prices for high-end owner-occupied homes saw significant rises in late 2024, particularly in Zurich and Central Switzerland. Demand is being supported by cheaper mortgage financing resulting from the SNB's rate cuts, with forecasts suggesting rates could edge down further this year. Despite rising prices, the risk of a property bubble is currently seen as moderate. However, new construction activity remains below average, limiting supply, especially in cities. While lower rates help, the combination of high prices and limited supply suggests affordability challenges persist, potentially widening the gap between premium buyers and others trying to enter the market. Quoted rents showed signs of stabilizing recently after earlier increases.

In brief company news, Swiss Life today confirmed its strong solvency position in its latest financial condition report, with a key capital ratio comfortably above its target range at the end of 2024.