SNB Plays for Survival, Not Prosperity: Switzerland Faces Economic Decadence
Switzerland, long celebrated for its economic resilience and stability, is entering a period of stagnation rather than growth. The recent moves by the Swiss National Bank (SNB) reveal a central bank prioritizing economic survival over prosperity, as global uncertainties and domestic weaknesses weigh on the nation’s outlook.
A Policy of Precaution, Not Ambition
On March 20, 2025, the SNB cut its policy rate by 0.25 percentage points to 0.25%, the lowest level since September 2022. This marks the fifth rate cut in the current cycle, a clear signal that the central bank is more concerned about downside risks and deflation than about overheating or robust expansion. The SNB’s own statements highlight its intent: “ensuring that monetary conditions remain appropriate, given the low inflationary pressure and the heightened downside risks to inflation”.
Inflation has dropped sharply-from 0.7% in November 2024 to just 0.3% in February 2025-mainly due to falling electricity prices, with domestic services still providing some upward pressure. The SNB forecasts inflation to remain subdued: 0.4% in 2025 and 0.8% for both 2026 and 2027, assuming the policy rate stays unchanged.
Economic Decadence: Growth Below Potential
Despite Switzerland’s reputation for economic strength, the numbers tell a story of decline. Official forecasts now peg GDP growth at just 1.4% for 2025 and 1.6% for 2026, both below the long-term average of 1.8%. The government and independent economists alike have trimmed their expectations, citing global trade tensions, weak investment, and a sluggish international environment.
“Growth is likely to be below the historical average for at least two more years…uncertainties complicating investment decisions and slowing the economy,”
- State Secretariat for Economic Affairs (Seco)
Investment in equipment-a key driver of productivity and future growth-has fallen back to pre-pandemic levels, reflecting a marked cooling in business confidence and capital spending. The SNB itself warns of “considerably more uncertain” prospects due to geopolitical risks and global trade disputes.
Survival Mode: The Cost for Swiss Households and Businesses
While low inflation supports consumer purchasing power, it is a double-edged sword. The SNB’s cautious stance means easier monetary conditions, but it also signals a lack of confidence in the economy’s ability to accelerate. Unemployment is edging higher, and banks are expected to remain cautious in lending, limiting opportunities for business expansion and job creation.
Swiss households may benefit from stable prices, but the broader environment is one of muted wage growth and limited new opportunities. The SNB’s focus is clear: avoid recession, maintain stability, and prevent deflation-but not to fuel a new era of prosperity.
A Future of Modest Hopes
The SNB’s actions underscore a shift from ambition to caution. Switzerland is not in crisis, but it is not thriving. The central bank’s strategy is to “play the survive,” keeping the economy afloat in turbulent global waters rather than steering toward new highs. For now, the message is clear: stability is the goal, prosperity will have to wait.
A Solution for Switzerland: Revitalizing the Economy Through M2 Policy
Switzerland’s economy is showing clear signs of stagnation, with sluggish growth forecasts and a sharp contraction in M2 money supply. The SNB’s recent focus on stability has helped avoid crisis, but it has also contributed to economic decadence. To shift from survival to prosperity, a reconsideration of Swiss M2 policy could be pivotal.
Why Focus on M2?
M2 represents the broad money available for spending and investment in the economy. In 2023, Switzerland’s M2 growth fell by 10.4% year-on-year-a rare and significant contraction. As of early 2025, M2 remains below its 2020 peak and has even declined slightly month-on-month. This persistent drop signals tight monetary conditions, which can suppress lending, investment, and consumption.
Potential Solution: Moderately Expanding M2
1. Easing Monetary Policy Further
The SNB has already started lowering policy rates (now at 0.25%), but further targeted easing could encourage banks to lend more, businesses to invest, and households to spend. A moderate, well-communicated increase in M2 would help reverse the current contraction, supporting domestic demand and business confidence.
2. Supporting Credit Growth
With loans to the private sector only growing modestly, policies that incentivize banks to lend-such as reducing reserve requirements or offering targeted lending facilities-could help channel more money into productive sectors.
3. Balancing Risks
The SNB must avoid overstimulating the economy, which could reignite inflation or asset bubbles. Careful monitoring and gradual adjustments are essential.
Expected Benefits
- Boosting Domestic Demand: More money in circulation typically leads to higher consumption and investment, countering the drag from weak foreign trade.
- Stimulating Growth: A reversal in M2 contraction could help lift GDP growth closer to its historical average, creating jobs and improving wage prospects.
- Restoring Confidence: Clear signals from the SNB about supporting growth can improve business and consumer sentiment, encouraging forward-looking investments.
Conclusion
Switzerland’s current M2 contraction reflects a policy of caution, but it is holding back the economy’s potential. By moderately expanding M2, the SNB can help transition from mere survival to renewed prosperity-revitalizing domestic demand, supporting growth, and restoring confidence in Swiss economic dynamism. For Switzerland to move beyond economic decadence, a bold, balanced approach to M2 policy may be the key to unlocking a new era of prosperity.