here is what awaits us for 2025

here is what awaits us for 2025
here is what awaits us for 2025

Lower inflation will move rents, wages and interest rates next year. A particular type of mortgage will become more advantageous.

Niklaus Vontobel / ch media

This is perhaps THE economic trend of 2024: after having risen for a long time and strongly, inflation has fallen at a surprising speed. At the height of the bullish wave in summer 2022, it still exceeded 3%. According to forecasts from the ETH Zurich Economic Research Center (KOF), the tide has turned – and this will be felt in 2025.

L’inflation under control again

But let's start from the beginning. According to the KOF, inflation will only reach 1.1% in 2024 and 0.5% next year. At the federal level, the State Secretariat for the Economy (Seco) is still counting on an average of 0.3% over twelve months, or half as much as last summer (0.7%). For 2026, we should expect 0.7% again, not due to a resumption of the trend, but to statistical effects.

Some indicators suggest that there will be almost no inflation in the months to come. KOF surveys show that in many sectors most companies do not expect any price increases in the next three months. And according to the Federal Statistical Office, the national consumer price index has not increased at all over the last six months – so everything has stagnated, on average.

Paint descending

This rapid victory over inflation now has considerable consequences. The Swiss National Bank (SNB) could still make a quick turnaround when interest rates were cut in 2024. Its last decision, for now, was to reduce the key rate by half a percentage point in December. This is expected to continue next year.

According to the KOF forecast, the National Bank will continue to ease its monetary policy and will cut its key rate again by a quarter of a percentage point in March. It would then reach 0.25%, which makes the KOF write:

“The National Bank is close to the zero rate threshold”

Inflation has therefore fallen considerably and is expected to continue to do so. The same goes for the SNB's key rate – and this now leads to a long chain of consequences.

Certain mortgages cheaper

Mortgage rates would stabilize at a lower level, according to the KOF. UBS has published detailed forecasts on this subject. It appears that a large part of the mortgages recently concluded on the money market currently cost between 1.1 and 1.6%. In one year, this rate would be between 0.8 and 1.3%.

For ten-year fixed-rate mortgages, values ​​have already fallen by 0.8 percentage points in one year. But according to the big bank, this is fading. The majority of these mortgages currently have an interest rate between 1.1 and 1.6% – and will be in a comparable range a year from now.

THE rents are under pressure

The reduction in key rates has already led to a significant reduction in the average interest rate on all outstanding mortgages. However, in December this was not enough to lower the corresponding mortgage benchmark interest rate. This will happen in March, writes KOF. The benchmark interest rate will fall again for the first time and many tenants at the end of their lease will then be entitled to a reduction. Seco also expects the benchmark interest rate to fall in 2025.

Raiffeisen even claims that the average level of interest rates on all outstanding mortgages could fall so much that the benchmark interest rate would have to be revised downwards twice next year. For this to actually happen, the SNB will not just have to come close to the zero threshold, but it will have to actually get there. According to Raiffeisen, this is what will happen: the SNB will make another second adjustment after March and will have a key rate of 0% in 2025.

Wages: double surprise for the social partners

Furthermore, inflation has surprised the social partners twice in recent years. In 2022 and 2023, consumer prices rose much faster than employers and unions anticipated during wage negotiations. Thus, nominal wages have increased less than prices – and real wages have fallen in two years, concludes the KOF. This resulted in a loss of purchasing power.

It is, so to speak, the opposite part which is playing out now: the social partners had not anticipated the rapid fall in inflation. During wage negotiations, they assumed that inflation would remain high. Real wages will therefore increase by a little more than 1% this year and by much more in 2025. What also helps workers is the reduction in their number on the labor market in the years to come. The aging of the population has caused a major decline: the number of workers retiring each year now exceeds that of newcomers.

(Translated from German by Valentine Zenker)

The news in Switzerland is here

The new CFF station in Geneva

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The new CFF station in Geneva

Geneva Cornavin CFF

source: cff

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