Swiss GDP Gains 0.5% as Iran War Tests Franc, Export Outlook

Switzerland’s economy grew faster at the start of 2026, giving the country a firmer base just as the Iran war threatens to weaken the months ahead. Seasonally adjusted output, excluding the effect of major sporting events, rose 0.5% in the first quarter after a 0.2% gain in the final three months of 2025, according to provisional data reported from SECO. Industry and services both contributed, a useful sign for an economy that had only recently steadied after a tariff-driven setback in 2025. The number shows resilience, but not immunity.

Energy Prices Change the Forecast

The better first quarter landed after the global backdrop had already shifted. KOF Swiss Economic Institute said in March that U.S. tariff policy and the war involving the United States, Israel and Iran had become central to its Swiss forecast. It expects real GDP, adjusted for major sporting events, to grow 1.0% in 2026 and 1.7% in 2027 if the conflict has only a limited effect on Switzerland. SECO’s government-linked expert group has the same 2026 and 2027 growth profile and said the Middle East war is pushing up energy costs and increasing uncertainty.

Tariffs Hit Before Tehran

Switzerland entered the year with momentum still below its long-run pace. KOF had expected 1.4% real GDP growth for 2025, adjusted for major sporting events, and said late last year that trade tensions with the United States remained a drag even after tariff pressure eased. Washington’s tariff rate on Swiss exports had been reduced from 39% to 15%, according to KOF, but the deal did not remove the pressure on export-oriented sectors. That matters because Switzerland’s economic model depends heavily on high-value goods sold abroad, including pharmaceuticals, machinery, electronics and luxury watches.

Watches Face Weaker Demand

The damage would not be evenly spread. KOF said chemicals and pharmaceuticals had been supporting goods exports, while more cyclical sectors such as watches, machinery and electronics were still suffering from soft international demand. That split is important because pharmaceuticals can hold up when global demand cools, while luxury goods and capital equipment are more exposed to confidence, financing conditions and corporate investment plans. For Swiss manufacturers, higher energy costs add to the problem by raising input bills at the same time that foreign customers may become more cautious.

A $90 Oil Scenario

KOF’s adverse case shows how quickly the outlook could deteriorate. If oil prices settle near $90 a barrel and stay roughly 30% above the baseline, KOF estimates Swiss growth would slow to 0.7% in 2026 and 1.5% in 2027. By the end of 2027, output would be 0.6% lower than in the baseline forecast, with around 20,000 fewer full-time-equivalent jobs created. Inflation would also run higher, rising to 0.6% in 2026 and 0.8% in 2027 under that scenario.

The Franc Becomes a Drag

The currency channel may be just as important as oil. The Swiss franc often strengthens when investors seek safety, but that can hurt exporters by making Swiss goods more expensive abroad. The Swiss National Bank kept its policy rate at 0% on March 19 and said its willingness to intervene in the foreign-exchange market had increased because of the Middle East conflict. The central bank said it would act against a rapid and excessive appreciation of the franc if that move threatened Swiss price stability.

June Data Carries More Weight

The next test is whether the first-quarter gain proves durable or turns into a high point before energy costs and uncertainty filter through business decisions. SECO’s full first-quarter GDP release is scheduled for June 1, which should give a clearer view of whether services, industry and domestic demand are still moving together. The forward risk is that companies delay investment, exporters lose price competitiveness and consumers become more cautious if fuel and heating costs stay elevated. Switzerland has started 2026 better than feared, but its recovery now depends on forces it cannot control: the path of the war, the oil market and the franc