Swiss Economy Surges Far More Than Forecast, Led by Pharma
(Bloomberg) — Swiss growth momentum surged to the fastest pace since 2021, highlighting the economy’s resilience to higher energy costs and lingering trade uncertainty.
Gross domestic product adjusted for large sport events rose 1.5% in the second quarter from the previous three months, according to a flash estimate. That’s much higher than expected by any analyst in a Bloomberg survey, which predicted expansion would slow to 0.3% from 0.4% at the start of the year.
Pharmaceuticals and chemicals drove a good performance of the industrial sector, the State Secretariat for Economic Affairs said on Friday. The services sector including hospitality and finance also expanded, the agency added.
“It’s quite a surprise that growth would come in this strong,” said Maxime Botteron, an economist at UBS Group AG. “But I wouldn’t overstate the effects, this is more a one-time outlier than a sustainable acceleration.”
The reading provides new evidence of Switzerland’s ability to weather global turmoil after government spending was the main driver of growth early in the year. While the economic impact of the Iran war has become more pronounced, the country has been able to reap the profits of being less reliant on fossil fuels than peers.
The franc slipped 0.1% to €0.9368, brushing off the latest data as investors continue to sell the low-yielding currency on the view that Swiss interest rates will stay low.
The central bank remains one of the most dovish among the G10. Investors are tapping the franc to finance purchases of higher-yielding assets, which is maintaining downward pressure on the currency.
“What we have been seeing in the last few months is that as FX volatility has remained incredibly low, investors are increasingly shifting into carry trades,” said Dominic Bunning, head of G10 FX strategy at Nomura. “In G10 the cleanest way to do that is via the franc for now as there is no real risk of FX intervention to strengthen the franc from the SNB, and little sign of rate hikes coming any time soon.”
Swiss National Bank interventions have helped exporters, as they prevent haven flows into the franc from causing the currency to appreciate. Policymakers have also held borrowing costs at zero and Bloomberg reporting indicates they currently expect no change in the benchmark through 2027 unless new shocks emerge.
What Bloomberg Economics Says…
“The output jump shouldn’t change the SNB’s policy outlook. Underlying price pressure remains weak and the franc structurally rich. We expect the central bank to keep its policy rate at 0% through the end of 2027.”
—Martin Ademmer, economist. For full REACT, click here
Switzerland is home to pharma giants Novartis AG and Roche Holding AG, both of whose most recent earnings beat expectations.
The country has also seen a rebound in manufacturing. In March, the purchasing managers index signaled growth for the first time in more than three years, and has continued to do so since.
At the same time, US trade policy remains a key uncertainty. Switzerland secured a preliminary agreement last November capping tariffs at 15%, but doubts linger on the reliability of that limit, as Washington has so far failed to sign any legally binding deal. Talks continue and Switzerland’s top trade diplomat said in July there was a “good chance” of securing an outcome that makes the rate last.
Politically, Swiss voters removed a major risk to growth in June when they rejected a population cap proposed by the right-wing Swiss People’s Party. With immigration remaining a key fault line, the next plebiscite on economists’ radar is on relations with the European Union, which buys more than a third of Swiss exports. Voters are expected to cast ballots on new bilateral agreements next year or in 2028.
The preliminary GDP reading doesn’t include figures from all sectors of the economy, so it isn’t uncommon for it to be revised later. The final growth number, along with further details on its drivers, will be published on Sept. 3.
Friday’s reading excludes data from large sport events because they can distort the overall picture of the Swiss economy. The country is home to several global sports bodies, including the International Olympic Committee and the international soccer organization FIFA.
–With assistance from Kristian Siedenburg, Joel Rinneby, Harumi Ichikura, Naomi Tajitsu, Georgia Hall and Alice Gledhill.
(Updates with FX strategist in eighth, Bloomberg Economics after ninth paragraph)
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