How exposed is Switzerland to the war in Ukraine?

With the crisis in Ukraine escalating, there is growing concern that European economies will be affected. In this Macro Flash Note, GianLuigi Mandruzzato looks at the risks faced by the Swiss economy.

The direct consequences of the conflict on Swiss GDP growth will be limited. In 2021, Russia absorbed only about 1% of Swiss exports and was the source of only 0.4% of Swiss imports. Ukraine was an even smaller trading partner, worth less than 0.2% of Swiss exports and less than 0.1% of Swiss imports (see Chart 1).¹

Source: IMF Direction of Trade Statistics, SECO, Refinitiv, and EFGAM calculations.

In comparison, Switzerland trades much more with the countries in the European Union (EU). In 2021, EU countries were the destination of almost 43% of Swiss exports and originated more than 52% of Swiss imports.

Hence, should the war in Ukraine have a meaningful and lasting impact on economic activity in the EU, this would indirectly also impact the Swiss economy. More broadly, as a small open economy, Switzerland is structurally exposed to any shock that affects global trade flows negatively.

The war in Ukraine will also directly affect Swiss prices. If oil prices stay high, the price of petroleum products, which Switzerland mainly imports, would stay high. However, the impact on the general level of prices in Switzerland would be expected to be relatively limited. According to the International Energy Agency, in 2020 oil and petroleum products comprised 34% of total Swiss energy supply, natural gas another 12% and coal less than 0.5% (see Chart 2). In total, the prices of about 46% of Swiss energy sources are affected by the war in the Ukraine and the risk of Russian supplies being restricted.

Source: International Energy Agency and EFGAM calculations.

This makes Switzerland less exposed than many other countries to the risks posed by the current crisis and higher energy prices. For comparison, liquid fossil fuels are the source of 57.5% of the total EU energy supply, and coal, also mostly imported from Russia, adds another 13%, for a total of more than 71%.

Furthermore, the impact on Swiss inflation due to higher import prices will most likely be mitigated by the appreciation of the Swiss franc that would be expected if geopolitical tensions escalated further.

In conclusion, the direct impact of the crisis between Russia and Western countries on the Swiss economy is expected to be limited. However, the longer it lasts the higher the chance that growth in the EU, Switzerland’s main trading partner, will slow and that high energy prices will raise Swiss inflation, negatively affecting the Swiss economy.

¹ Another channel of transmission of the crisis on Swiss GDP growth is the financial channel: if cross-border banking activities are constrained by sanctions on Russian entities that may impact the activity of the Swiss banking sector, but the impact is hard to evaluate.

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