The Swiss National Bank (SNB) sees Switzerland’s economic outlook as increasingly uncertain, mainly due to the conflict in the Middle East, but still expects a gradual recovery over the medium term.
Minutes from the March 19 monetary policy meeting, released on Tuesday, show that global conditions remain broadly stable, yet geopolitical risks are weighing on the near-term outlook and could disrupt trade and financial flows.
Outlook clouded by Middle East conflict
The SNB expects gross domestic product (GDP) to grow around 1% in 2026 and about 1.5% in 2027. The bank said the current negative output gap, created by last year’s contraction, should narrow steadily over the coming quarters as activity normalizes.
Unemployment has levelled off and is forecast to edge lower, pointing to a still-resilient labor market despite weaker external demand.
Growth to recover slowly
Inflation is projected to rise temporarily, driven mainly by higher energy costs linked to international tensions. The SNB’s conditional forecast, which assumes no change in the policy rate, remains within its definition of price stability over the entire forecast horizon, with inflation expected to decline again in the medium term.
Short-term inflation projections were revised slightly higher due to energy, while medium-term estimates were broadly unchanged from the previous quarter.
New data since the March meeting largely confirm that view. Consumer prices in March rose 0.3% from a year earlier, up from 0.1% in February and the fastest pace in a year, led by housing and energy. However, core inflation, which excludes those volatile components, held at 0.4%, suggesting price pressures remain narrow and contained.
Inflation seen contained despite energy shock
The SNB kept its policy rate at 0%, judging its stance to be “still expansionary,” backed by ongoing growth in credit and broad money supply.
However, the central bank noted that the rise in the Swiss franc has tightened monetary conditions relative to its December assessment. A stronger franc reduces imported inflation but also weighs on exports and domestic activity.
The bank identified developments abroad as the main risk to both growth and inflation. It warned that an escalation in the Middle East could hurt global trade and further boost safe-haven demand for the franc, adding to upward pressure on the currency.
Franc strength tightens conditions
Officials reiterated they are prepared to intervene in the foreign exchange market if needed to counter rapid or excessive appreciation of the franc. The minutes underline that currency operations are currently the preferred tool over changes to the policy rate, which remains at zero.
This mirrors past episodes when the SNB used interventions to manage large capital inflows and protect price stability, effectively signalling that there is a tolerance limit for further sharp franc gains.
The SNB also stressed that Switzerland is relatively resilient to rising energy prices, citing lower energy intensity in household consumption and industrial production compared with many other advanced economies.
Readiness to intervene in currency markets
The franc showed little immediate reaction to the publication of the minutes. Later in European trading, USD/CHF edged higher to around 0.7820 as the U.S. dollar recovered earlier losses. By April 16, the pair hovered near 0.7806, with moves largely driven by shifting geopolitical risk sentiment and safe-haven flows.
The currency’s sustained strength continues to act as an automatic tightening mechanism, a development closely monitored by the SNB’s governing board and by traders focused on export-sensitive sectors and rates expectations.
Market reaction and currency moves
For traders exposed to swift changes in financial conditions, the SNB’s stance introduces a clear tactical factor: the possibility of sudden foreign exchange intervention should haven flows push the franc up too quickly.
Market participants now face a dual watch in the weeks ahead:
- external developments, especially in the Middle East, that could amplify safe-haven demand for Swiss assets; and
- the tone and wording of SNB communication, where even subtle shifts could precede direct market action.
Any signal that the bank is moving closer to intervention would be likely to have an immediate impact on the franc and on related asset prices.
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