• The growth outlool for the US has clouded over.
• After a strong first quarter, growth momentum in Europe is also likely to slow.
• Inflation risks are higher for the US than for Europe.

• A strong recovery was seen on the stock markets following the fall in prices in the wake of Trump's Liberation Day. However, the air to the upside is getting thin.
• In view of significant geopolitical and economic policy uncertainties, we consider the current credit spreads in both the investment grade an high yield segments to be less attractive.
• In Switzerland, the low interes rate environment has worsened, which has also increased the investment crisis for Swiss investors. The property market, among others, should benefit from this.

• Increasing geopolitical instability: Israel-Iran conflict, NATO tensions and fragile trade agreements increase political uncertainty for markets.
• The effective US tariff rate is likely to rise to 10-15%, threatening export-oriented companies and global supply chains.

The global economy is still only expected to grow at a below-average rate this year. Uncertainty remains high, as the global environment is characterised by political change: historically high US import tariffs, the direct conflict between Israel and Iran and the shift towards a more expansive fiscal policy in Europe.  

The Trump administration is pursuing a broad package of measures, the trade policy and immigration law components of which are clouding the US growth outlook. Although the more sluggish economic data still points to a robust environment, the gloom is particularly evident in private households: Both consumer sentiment and thus the willingness to spend have declined noticeably. The University of Michigan Survey of Consumers also shows that American families are expecting prices to rise significantly as a result of tariffs.  

Companies are also reacting with concern to the threat of tariff-related cost increases. This is reflected in an extraordinary rise in goods imports of over 50 per cent in the first few months of the year – a pull-forward effect.  

Although Trump's tax package as part of the "Big Beautiful Bill" should certainly have a growth-supporting effect, it is far from being able to compensate for the negative effects of other policy areas. Accordingly, the growth forecasts for the USA have been drastically revised downwards - growth of just 1.4 per cent is currently expected. This is almost one percentage point lower than at the beginning of the year. 

US policy is not only weighing on the USA itself but is also impacting the European economic outlook. The GDP figures for the first quarter are still showing strength, fuelled by exports to the USA. However, this momentum is likely to increasingly flatten out.  

In the eurozone, positive impetus is coming from Germany's easing of the debt brake and the planned EU-wide increases in defence spending. However, these fiscal measures will not take effect until next year and the risks for the eurozone remain elevated.  

The relationship with the USA is not only tense in terms of trade policy, but also geopolitically. At the NATO summit, the EU met the American demands for higher defense spending. The member states committed to a significant increase in defense spending to 5 percent of GDP over the next ten years. While this seems feasible for countries such as Germany, it poses considerable challenges for highly indebted EU states. Spain, for example, has already declared that it will not be able to reach this target.  

In terms of trade policy, a new agreement with the USA is being sought by 9 July. However, even such an agreement does not offer complete protection against future tariff increases – as the example of the UK makes clear.  

Switzerland recorded above-average growth in the first quarter of 2025, driven by strong service sectors and robust exports in the chemical and pharmaceutical industry. However, we expect a significant slowdown over the course of the year due to declining export momentum, trade policy uncertainties and the appreciation of the Swiss franc.  

The State Secretariat for Economic Affairs (SECO) is forecasting growth of 1.3 per cent for 2025. However, if the trade conflict with the US escalates in the third quarter, growth could fall to 0.8 per cent for 2025 and just 0.3 per cent for 2026. 

While the European central banks have lowered their key interest rates in recent months, the US Federal Reserve (Fed) remains in a wait-and-see position. The reason for this is that the announced tariffs and expansive fiscal policy are likely to fuel US inflation. However, the extent and timeframe of this development remain highly uncertain, as the final tariff rates have not yet been finalized and the impact on inflation is influenced by numerous factors. Exchange rate fluctuations and trade reallocations can partially offset tariffs. At the same time, each company decides individually to what extent it will pass on tariff-related cost increases to customers.  

We do not expect the Fed to adjust its interest rates until there is more clarity on tariff rates. A first rate cut is therefore not expected until the end of the third quarter at the earliest.  

The latest Fed forecasts illustrate the central bank's growing conflict of objectives: on the one hand, the growth forecast for the US has been revised downwards since March, while on the other hand the inflation forecast for 2025 has been raised. Despite these challenges, the Fed Committee considers two interest rate cuts in the current year to be appropriate. However, opinions within the committee differ - seven out of 19 members are against any easing in view of the inflation risks. 

The situation in Europe is fundamentally different. Many European countries have a trade surplus with the US, which is why US tariffs would significantly slow down European growth. As only limited European countermeasures are expected, the central banks are assuming that the economic slowdown will also lead to lower inflation due to falling exports. For them, the case for further interest rate cuts is clearer than for the US Federal Reserve.  

In view of falling inflation in the eurozone and the downward risks, the European Central Bank (ECB) has already cut interest rates four times this year by 0.25 percentage points each time. The interest rate on the deposit facility currently stands at 2.0 per cent. The ECB has thus ended its restrictive monetary policy and is prepared to ease its policy further should the downside risks to inflation materialize. 

Inflation has also fallen significantly in Switzerland since the beginning of the year. The driving factors were falling energy prices and the strength of the Swiss franc. In May, inflation slipped back into negative territory for the first time since 2021. The Swiss National Bank (SNB) responded with two interest rate cuts and introduced a zero-interest rate policy in June. In view of low inflation and global economic risks that are exerting upward pressure on the Swiss franc, the SNB could even consider a return to negative interest rates. International developments will remain decisive. 

After months of being historically tight, Trump's comprehensive tariff announcements caused credit spreads on corporate bonds to widen significantly. Spreads for investment-grade bonds in US dollars and euros widened by an average of around 30 basis points, while high-yield bonds came under even greater pressure, widening over 100 basis points.  

However, this market reaction proved to be a short-lived phenomenon. Like the equity markets, credit spreads quickly normalized again and by the end of the quarter were once again very tight – a trend that was particularly pronounced in the USA. This rapid recovery underlines investors' continued risk appetite despite the heightened trade policy uncertainty. 

Outlook: In view of significant geopolitical and economic policy uncertainties, we consider the current credit spreads in both the investment-grade and high-yield segments to be rather unattractive.  

The lack of clarity regarding the US trade policy agenda is likely to lead to consumer restraint among US households in the coming months. Concerns about significantly rising prices because of the Trump administration's planned tariff measures are justified and, at the same time, a substantial fiscal policy package - should a stimulus be necessary - would probably be difficult to implement due to the US debt situation.  

Major investments by companies are also less likely under these uncertain conditions and could be postponed further in both the US and Europe.   

In view of the weakening global economy, we consider export-oriented sectors with a high proportion of variable production costs and low margins - such as manufacturers of basic chemicals - to be particularly vulnerable. We also expect demand for discretionary consumer goods (e.g. leisure & entertainment, consumer electronics, automotive) to be subdued in the second half of 2025.  

We anticipate a volatile market environment that may offer opportunities for attractive returns in addition to higher risks. 

Trump's announcement of exceptionally high reciprocal tariffs triggered a significant equity market correction. The VIX index – Wall Street’s fear gauge - soared to levels last seen during the financial and coronavirus crisis. Within just six trading days, stock markets in the US and Europe plummeted by 12 to 13 per cent. Chinese shares suffered even more dramatic losses due to the escalating tensions between Washington and Beijing.  

The turnaround came just as abruptly: when Trump announced a tariff pause a week later, an impressive recovery set in. By mid-May, most equity markets had already fully recovered their losses and reached the levels seen before the tariff announcement. Even the military tensions between Israel and Iran were unable to significantly slow this upward momentum. At the end of the quarter, the S&P 500 crowned the recovery with a new all-time high.  

The regional performance divergence over the year is remarkable: European markets continue to lead ahead of their American counterparts. The EuroStoxx 50 and the SPI posted solid gains of between 7 and 9 per cent in local currency terms. Emerging market equities performed even more impressively with a gain of 14 per cent. These benefited from the continuing weakness of the dollar. 

Outlook: Following the sharp rally since mid-April, we believe the potential for further significant price advances is limited. We expect occasional setbacks, particularly in highly valued markets such as the USA. Emerging market equities, on the other hand, should continue to benefit from the weakness of the dollar. 

Politics will continue to act as a key price driver in the coming months, potentially causing price swings in both directions.  

As such, US trade policy remains a key risk. Although uncertainty has decreased since April, it remains at elevated levels. Our forecast assumes that the effective US import tariff rate will rise to between 10 and 15 per cent by the end of the year. Although this is only half of the tariffs originally announced on 2 April, it still represents a five-fold increase compared to the previous year. 

Trade-dependent US companies will feel the impact of rising tariff-related costs. Some of these costs are likely to be passed on to end consumers, but the rest will fall on profit margins. At the same time, exporters to the USA must expect falling demand. Companies in the service sector are significantly less affected by these tariff risks. 

We see opportunities in countries without debt problems such as Germany. These could provide additional support for investor demand in the coming months through further targeted fiscal policy stimuli. This is because investors are increasingly looking for alternatives to the US market. 

The tariff measures announced by Trump have put both the equity and currency markets under considerable pressure. The impact on the US dollar was particularly evident: The president's unpredictable trade policy and its expected negative consequences for the US economy led to a noticeable loss of confidence among investors. The greenback lost over 9 per cent against the Swiss franc and around 8 per cent against the euro in the second quarter.  

However, the weakness of the US dollar is not solely due to trade policy. Additional pressure is being exerted by the prospects of a further increase in national debt and Trump's repeated attempts to exert influence on the US Federal Reserve and Fed Chairman Jerome Powell in particular. These attempts to interfere are particularly problematic, as the political independence of the central bank is a cornerstone of a credible monetary policy and stable financial markets.  

In this environment of heightened uncertainty, the Swiss franc benefited as a traditional safe haven and appreciated by around two per cent against the euro. Looking at the year as a whole, however, the euro-franc exchange rate is remarkably stable. 

Outlook: We expect the euro-franc exchange rate to remain stable in the coming quarter. However, an escalation in trade policy between the EU and the US could lead to a weakening of the euro and a corresponding strengthening of the franc. 

Following its sharp depreciation, the US dollar is likely to recover slightly in the short term, particularly if trade tensions ease. However, a return to the levels seen at the beginning of the year seems unlikely. In the longer term, we expect a structurally weaker dollar as investors increasingly question its traditional role as a safe haven. Given the unpredictable policies of the Trump administration, these doubts are likely to persist in the coming months.

The discussion about possible negative interest rates has led to a significant reactivation of the property market in recent months. Against the backdrop of the key interest rate cut by the SNB on 19 June, exchange-traded property funds recorded a sharp rise in valuations, in some cases with premiums of over 50% compared to the net asset value. 
 
This development reflects less a real improvement in the returns of the underlying portfolios and more a renewed search for "safe havens" in an increasingly interest rate-sensitive capital market. Increased activity can also be observed on the transaction market, with sales continuing to be selective and often involving family or tax considerations. 

Increasing regulatory pressure 
 
In parallel to the easing of monetary policy, regulatory risks are increasingly coming into focus. At the end of May, FINMA once again pointed out weaknesses in the affordability assessment of mortgage loans and warned of systemic risks. A tightening of the lending criteria could lead to a credit crunch in the medium to short term, particularly for new construction projects or speculative financing with high loan-to-value ratios. 
 
Added to this is the political discussion about possible rent restrictions: Geneva and Basel-Stadt already have statutory regulations in place. In Zurich, corresponding petitions were submitted in June 2025, which could be put to a vote in the coming months. This increases planning uncertainty, particularly for investors in the residential segment. 
 
Increased volatility likely in the short term 
 
In view of the current strongly expectation-driven market situation - supported by potential interest rate cuts, but also burdened by regulatory uncertainties - increased volatility is to be expected in the short term. The sharp rise in premiums for listed funds harbors potential for correction if monetary policy hopes are not fulfilled or additional regulatory intervention occurs. 

Outlook: Whether the current boom in property investments proves to be sustainable depends largely on the SNB's monetary policy and regulatory developments in credit and tenancy law. The discussion about rent caps, stricter lending criteria and the affordability of investments could lead to a stronger segmentation of the market in the medium term - both geographically and in terms of quality.