Swiss economic institute KOF raises 2026 GDP growth forecast to 1.9%

GDP forecast revised upward

Economists at ETH Zurich's KOF Swiss Economic Institute raised their 2026 economic growth forecast for Switzerland to 1.9%, up from the 0.8% projection issued in June. The institute also lifted its 2027 gross domestic product forecast from 1.5% to 1.7%, while setting its initial 2028 growth outlook at 1.7%. These figures exclude the economic effects of international sporting events. The upward revision follows a stronger performance in the first half of 2026, where global trade proved resilient despite US tariff policy and high energy costs. Upward revisions to past national accounts data also expanded the baseline potential for output.

KOF director Jan-Egbert Sturm explained the drivers behind the surprise during a press conference in Zurich.

The second quarter went astonishingly well.

Trade, investment and consumption drivers

The stronger growth profile was driven primarily by goods exports between April and June 2026, led by pharmaceutical shipments. Export-oriented industries showed stabilization, with machinery and electronics sectors demonstrating firmer footing alongside ongoing pharmaceutical expansion. Domestic activity provided additional momentum through positive trends in private consumption as well as investments in construction and equipment. Construction investments continued their recovery during the first six months of the year, while machinery investment grew at a more moderate pace. Forecasters project economic expansion will pause during the third quarter before resuming moderate growth in the fourth quarter of 2026, aided by improving outlooks in Germany and the wider eurozone.

Labor market dynamics and AI disruption

Employment conditions present a divided trajectory across the Swiss economy. KOF upgraded its full-year 2026 job growth estimate to 1.5%, up from the 0.5% rate anticipated in June, largely reflecting strong early-year hiring and revised historic records. However, hiring momentum is projected to slow to a low rate across the second half of 2026. The national unemployment rate, measured under the State Secretariat for Economic Affairs definition, is forecast to remain at 3.1% throughout 2026 and 2027 before declining to 3.0% in 2028. Economists identified structural changes as a factor in elevated unemployment, noting that high-skilled workers face displaced roles linked to artificial intelligence integration.

KOF director Jan-Egbert Sturm addressed the impact on white-collar employment during the briefing.

One reason is probably artificial intelligence.

Inflation and interest rate projections

Price stability remains intact across the forecast horizon, with consumer price inflation projected at 0.6% for both 2026 and 2027, followed by 0.5% in 2028. While nominal wage growth is expected to decelerate through 2027, low price pressures will allow for modest gains in real compensation. In response to monetary conditions, KOF economists anticipate that the Swiss National Bank will raise its policy rate by 25 basis points to 0.25% at its December meeting. The policy rate is then projected to remain unchanged across the remainder of the forecast window. Downside risks to the outlook include geopolitical escalation in the Middle East, rising bond yields, persistent US trade tariffs, and localized weaknesses in foreign export demand.