New economic data reveals Switzerland experienced a significant economic contraction during the third quarter of 2025, primarily driven by punishing tariffs imposed by the United States that severely impacted exports across the Atlantic.
Economic Contraction Exceeds Expectations
According to preliminary data released by Switzerland's economy ministry, the country's gross domestic product (GDP) declined by 0.5 percent between July and September compared to the previous quarter. This contraction proved more severe than market analysts had anticipated, highlighting the immediate impact of trade tensions with the United States.
The ministry reported that key economic sectors, particularly chemicals and pharmaceuticals, witnessed sharp declines during this period. Meanwhile, the service sector also performed below average, indicating broader economic challenges beyond just manufacturing and exports.
Trump's Tariff Shock and Subsequent Resolution
The economic downturn followed August's surprising announcement from US President Donald Trump, who imposed an additional 39-percent duty on imports from Switzerland. This rate ranked among the highest in his global tariff campaign and sent shockwaves through the Swiss export community.
However, the situation has since seen dramatic improvement. On Friday preceding the data release, both nations announced they had reached an agreement to substantially reduce these tariffs. The breakthrough came after Switzerland committed to investing $200 billion in the United States, a move designed to win favor with the White House administration.
The new framework agreement lowers the tariff rate to 15 percent for Swiss products, according to the White House statement. This development has brought relief to several Swiss industries that had been bracing for prolonged economic damage.
Industry Impact and Future Outlook
The Swiss watch industry, renowned worldwide for its precision and quality, experienced dramatic fluctuations due to the tariff situation. Watch exports surged in July as companies rushed to ship products before the higher tariffs took effect, only to collapse by 23.9 percent in August and 55.6 percent in September, according to the country's watchmakers' association.
Broader export data from employer federation Swissmem showed an overall 14.2-percent decline in Swiss exports to the US during the third quarter compared to the same period last year. The association expressed relief following Friday's tariff reduction agreement, though concerns remain about the Swiss franc's strength against the dollar, which makes Swiss products more expensive for American consumers.
Ipek Ozkardeskaya, senior analyst at currency trading firm Swissquote, commented that "The good news from the US tariffs was counterbalanced by the franc's persistent strength." She further noted that while the strong franc might seem like a first world problem, it has concrete implications for Swiss businesses competing in international markets.
Switzerland had previously warned of an economic slowdown projected for 2026, partly triggered by the high tariff environment. The recent agreement appears to have alleviated some of these concerns, though currency challenges and global economic uncertainties continue to shape the nation's export outlook.
