Swiss GDP fell by 0.5% in the third quarter, based on final figures released on Friday. This decline was slightly worse than the expected 0.4% drop and marks the first negative growth of the year. One major factor influencing the economy was the increase in US tariffs to 39% in August. Most of Switzerland’s key trading partners have lower tariffs, which affected net exports and slowed growth during the quarter. A preliminary agreement to reduce these tariffs may lead to better figures in the near future.

Long Term Economic Challenges

The Swiss economy heavily relies on the pharmaceutical sector, which could pose long-term challenges. Since 2014, this sector has grown faster than other industries, affecting overall economic health. US efforts to bring pharmaceutical production back home may impact Swiss growth, as some companies have started investing in the US. In the short term, the Swiss economy is likely to recover from the third-quarter decline once tariffs are reduced. The Swiss Franc has slightly strengthened against the euro, reflecting these economic changes and expectations for future growth. The 0.5% contraction in the Swiss economy during the third quarter of 2025 is mainly due to temporary US tariffs, not a fundamental issue. We observed that net exports slowed growth following a strong performance in the first half of the year. With a preliminary trade deal in place and tariffs being lowered, it’s important to look beyond this past data. This tariff-driven slowdown is expected to reverse quickly in the coming months, providing a short-term boost for the Swiss Franc. Recent data supports this expectation, with the latest Swiss PMI reading for November 2025 rising to 53.1, indicating growth after a dip in August and September. We can expect the Q4 export and industrial production figures to confirm this rebound.

Impact of Pharmaceutical Sector Dependency

For derivative traders, this suggests near-term strength in the CHF, especially against the euro. Purchasing short-dated call options on the CHF set to expire in early 2026 could capture this expected rise in economic activity. Implied volatility may decrease as tariff concerns fade, making option strategies more appealing. However, a larger issue is Switzerland’s increasing dependence on the pharmaceutical sector for growth. This reliance has intensified since the mid-2010s, obscuring weaker results in other industries. This concentration risk is a key long-term factor to monitor in the Swiss economy. The US government’s push to shift production back onshore poses a direct threat to Switzerland’s vital pharmaceutical industry. We are already seeing major Swiss firms, like Roche, announce significant investments in US manufacturing facilities. These investments represent funding and jobs that will not return to Switzerland. There is a noticeable difference between the short-term positive outlook and a more concerning long-term scenario. While the economy will likely recover from the Q3 2025 decline, structural challenges from the pharmaceutical sector are becoming more significant. This indicates that any CHF strength in the coming weeks could be an opportunity to prepare for longer-term weaknesses using strategies like calendar spreads. Create your live VT Markets account and start trading now.

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