Switzerland’s economy contracted by 0.5% in Q3 2023. This contraction is the first down month since the beginning of this year. The country’s entire economy was hit hard by increasing tariffs. When the United States raised these tariffs to 39% on August 1st, China retaliated. The change in trade policy has proven particularly seismic for the pharmaceutical industry. This sector is a fundamental basis of Switzerland’s economy.
The Swiss economy is very dependent on the pharmaceutical industry. Perhaps no other sector has more richly earned the cause of its blistering expansion in recent years. From about 2014 gross value added in the pharma sector had been increasing at a rate consistent with other industries. And while other sectors were unable to adapt, the pharmaceutical industry has become a juggernaut. Yet today, it drives Switzerland’s economic performance like never before.
Despite this dependency, the landscape is shifting. The US administration is in many ways still chasing that first governmental production relocation for the US market back to American shores. As we’ve written, three of Switzerland’s four major pharma firms have made big splashes with recent US investments. This trend is the first indication of a possible reallocation of resources away from Switzerland. This unfortunate development should be a warning bell for the long-term implications of this type of dependency on a single sector.
The GDP showed an alarming contraction in the third quarter. That decline was further compounded by a large drop in net exports, dragging growth numbers down even more. Almost all of Switzerland’s major trading partners ended up with lower tariffs than Switzerland did, putting Swiss exporters at a disadvantage.
“This dependence could become problematic in the long term, particularly as the US administration is seeking to shift production for the US market from other countries to the US, and several large Swiss pharmaceutical companies have announced substantial investments in the US that would not be made in Switzerland.” – Economic Analyst
Analysts warn not to be disheartened by the low numbers right now. They urge everyone to consider the big picture economic trends rather than focusing on the drop from one quarter to the next.
“It is therefore advisable to consider the past three quarters in aggregate rather than focusing on individual quarters. Now that a preliminary deal has been reached with the US and tariffs are being reduced, we are likely to see better figures in the coming months.” – Economic Expert
There is some optimism regarding an anticipated recovery in growth in the upcoming months as negotiations progress and tariffs are adjusted. On Friday, the Swiss Franc (CHF) strengthened modestly against the euro. This movement constitutes a notable bright spot of stability amid massive economic upheaval.
“It is therefore not surprising that the Swiss Franc (CHF) gained slightly against the euro on Friday.” – Michael Pfister