Switzerland’s economic growth slowed sharply in the second quarter, as strong frontrunning of U.S. tariffs in the early part of the year unwound, raising the chance that the Swiss central bank will cut interest rates to below zero later this year.

Gross domestic product rose 0.1% in the three months to the end of June, down from the 0.8% growth of the first quarter, statistical agency SECO said in a flash estimate on Friday.

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Growth in the first three months of 2025 was led by U.S. stockpiling of Swiss goods exports, especially pharmaceuticals, a key sector for Swiss industry. Much of that has unraveled since as exports declined after President Trump’s tariff announcements in early April.

Contraction in industry was counterbalanced by gains in the services sector in the second quarter, SECO said. The agency said it would release more details on the breakdown on Aug. 28.

The outlook for the future has grown more pessimistic. The Trump administration at the end of July said it would impose a 39% tariff rate on most Swiss imports, making Switzerland a rare country to be threatened with higher levies than originally announced.

That tariff rate, one of the highest in the world, would cut the Alpine nation’s GDP by about 0.5% over the next year, according to Goldman Sachs analysis. Industry association Swissmem called the outcome a “horror scenario” and that it could cost Switzerland tens of thousands of jobs.

However, there remain questions about the level of pharmaceutical tariffs yet to be decided by the U.S. In addition to pharmaceutical majors Roche and Novartis, Switzerland is also home to famed luxury watchmakers and the consumer-goods giant Nestle.

“The economy is likely to expand only slowly the next couple of quarters as high U.S. tariffs and elevated business uncertainty weigh on exports and investment,” Adrian Prettejohn, Europe economist at Capital Economics said in a note to clients.

Alongside near-zero inflation, that will likely persuade the Swiss National Bank to cut its key rate below zero later this year, he added. The interest rate was last below zero for around eight years until 2022.

The central bank has reduced its main interest rate to zero as it attempts to curtail the appreciating franc, which makes Swiss exports even less attractive. The franc has risen this year as investors flocked to the safe-haven currency amid choppy geopolitical waters.

Write to Ed Frankl at edward.frankl@wsj.com

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