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Europe is ramping up its spending on defence and critical infrastructure in response to a challenging geopolitical environment – this is creating new investment opportunities across several strategic industries
Swiss exports face the highest U.S. import tariffs of any advanced economy. Switzerland has significant fiscal space to invest for the long term, and so boost its own economy
US healthcare spending is fast outstripping other developed economies, but achieving worse health outcomes. A revolution in healthcare systems will improve outcomes and access as part of the transition to a sustainable, socially constructive economic model.
We are living in a time of rapid economic change. Old certainties – such as globalisation and the unilateral, U.S.-dominated world order – are being called into question. While some of today’s uncertainties may only be short-lived, others are part of fundamental, long-term system changes.
In this month’s edition of our “must-see charts” series, we highlight three themes that are shaping today’s markets and creating new investment opportunities. In defence and infrastructure, we explore how NATO and the EU are responding to a second Trump presidency and the ongoing war in Ukraine; in currency we take a look at ongoing dollar weakness; and in healthcare – a key concern for many investors when it comes to US trade tariffs – we look at the rise of new health systems.
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At Lombard Odier, we believe these themes are key to understanding today’s economic environment and the underlying system changes that will come to define tomorrow’s world.
In the EU, the Ukraine war has made a significant and lasting impact on many national security strategies. The European Commission published its European Defence White Paper in March of this year. The paper’s ReArm Europe Plan outlined a framework for unlocking EUR 800 billion in spending at the European level
1. Surging NATO and EU defence spending
On 25 June, NATO members pledged to increase their spending on defence and security to 5% of their annual GDP by 2035, with at least 3.5% of this to go directly on defence (a significant increase from the previous target of 2%), and up to 1.5% towards critical infrastructure.1 Though the move came at least partly in response to pressure from U.S. President Donald Trump, many NATO members had already acknowledged the need to increase defence spending in today’s more confrontational international landscape.
In the EU, the Ukraine war has made a significant and lasting impact on many national security strategies. In response, and catalysed by former European Central Bank President Mario Draghi’s call for Europe to invest in greater defence self-reliance2, the European Commission published its European Defence White Paper in March of this year. The paper’s ReArm Europe Plan outlined a framework for unlocking EUR 800 billion in spending at the European level.3
Germany and France have been quick to pick up the baton. Last month the German cabinet approved a 2026 draft budget that forms part of a plan to release EUR 500 billion in largely debt-funded spending to go towards defence and infrastructure by 20294. Meanwhile, French President Emmanuel Macron has announced plans to bring forward a planned hike in defence spending, saying, “Across Europe, nations are rearming, and France cannot leave its European allies on the front line in the face of very near-term threats.”5
Governments around the world invest to ensure sovereignty across their communications systems, energy production and distribution networks, defence, and technology
These commitments are part of a broader picture. Faced with geopolitical and trade tensions, and the reshaping of the world order, many countries have come to realise their urgent need to invest in resilience, autonomy and sovereignty in a number of key areas.
At Lombard Odier, infrastructure is one of our preferred investment themes, as governments around the world invest to ensure sovereignty across their communications systems, energy production and distribution networks, defence, and technology – including the data centres that host critical data and power artificial intelligence (AI). The widespread increase in security-related spending is also creating opportunities in cybersecurity and space infrastructure technologies.
For investors, there is a clear message. As a new, multi-polar world takes shape, so the investment landscape is reshaping, and today’s rush to achieve national security is kickstarting an investment spree that will define the future of many strategic industries.
2. Swiss ‘Miss’
Since 2020, Switzerland has successfully diversified its export-oriented economy away from German and Chinese markets to the U.S. In August, the Trump administration blindsided Swiss negotiators with a 39% import tariff6, the highest duty imposed on any advanced economy, and a rate far above the European Union’s 15%. Eventually, we expect this tariff to be negotiated lower.
In August, the Trump administration blindsided Swiss negotiators with a 39% import tariff… Eventually, we expect this tariff to be negotiated lower
A little more than half of Swiss goods exported to the U.S. are affected. Exemptions include pharmaceuticals7 and gold. After the EU, the U.S. is Switzerland’s second-largest export market for goods, and as a share of the Swiss economy, U.S. exports represent around 3.5% of Swiss gross domestic product. Switzerland could continue exports to the U.S. through neighbours with lower tariffs. That may be a risk worth taking. If caught by U.S. customs, such ‘transshipments’ would attract a 40% ‘punitive’ rate, hardly worse than the standard duty.
Given Switzerland’s export dependence, generally slowing economy and the importance of the U.S. market, we have reduced our growth forecast from 1.1% in 2025 to 0.9%
Given Switzerland’s export dependence, generally slowing economy and the importance of the U.S. market, we have reduced our growth forecast from 1.1% in 2025 to 0.9%8. This estimate also takes into account the country’s negative but stable inflation, and the strength of the Swiss franc.
We do not think that the Swiss National Bank will have to resort to negative interest rates again. With its key policy rate already at zero, we can’t rule out another cut, but only as a last resort if the Swiss franc strengthens substantially. In any case, negative rates would only have a very limited additional effect on domestic demand, and there are more effective economic solutions.
Switzerland enjoys significant fiscal room for action. Investments in the country’s energy, infrastructure or defence for the long term would, for example, be much more beneficial for the domestic economy than a return to negative interest rates.
Donald Trump’s trade policy defies conventional economic logic but reflects his understanding that a country shipping more to the U.S. than it imports is “stealing” from Americans. The damage to the U.S. economy is emerging as the bulk of a tariff is paid by American importers and consumers. Corporate steps to manage by stockpiling or absorbing additional costs have cushioned the blow for now, but cannot fully shield the U.S. economy from a self-inflicted slowdown.
3. US health spending sprints ahead – but outcomes lag behind
The U.S. spends nearly 18% of its GDP on healthcare9 – around double the OECD average10 – amounting to USD 13,432 per capita in 202311. Despite this record investment, life expectancy in the U.S. remains more than four years lower than in comparable countries such as France, Switzerland and Australia.
The U.S. spends nearly 18% of its GDP on healthcare – around double the OECD average – amounting to USD 13,432 per capita in 2023
Today, the U.S. healthcare sector is coming under growing pressure to reform, with President Trump having called for U.S. drugmakers to cut their prices12. Trump’s interest in the sector is also hitting overseas pharmaceutical firms. European firms – which make up 60% of US pharma imports – will be included in the 15% tariffs imposed by Trump on imports from the EU. Trump’s recent imposition of 39% tariffs on Switzerland did not include Swiss pharmaceuticals, however, leaving the Swiss industry in a state of uncertainty.
At Lombard Odier, though healthcare is not one of our preferred sectors, we see selective opportunities amid depressed valuations and sentiment, particularly in firms with strong pipelines that can drive earnings growth despite today’s uncertainties. We will also be watching the Swiss Market Index closely should the current tariff ‘waiting game’ be resolved.
Looking further ahead, however, healthcare plays a key role in the global system changes analysis that underpins our approach to investing for the long term. We believe that as the world transitions to a sustainable economy – one that is net zero, nature-positive, socially constructive and digitally enabled – we will see fundamental and lasting changes across five global systems: energy, industrial, consumer, technology, and health.
For investors, this shift to a socially constructive economy will create new opportunities both in traditional pharmaceuticals and fast-growing AI- and tech-enabled supporting industries
We believe that over the coming decades, supported by advances in technology and AI, we will move from ‘sick-care’ to preventative, personalised medicine. Inexpensive genetic screening will become commonplace, as will real-time monitoring of health indicators to enable interventions at the earliest opportunity, adding not only to lifespans, but to ‘healthspans’. For investors, this shift to a socially constructive economy will create new opportunities both in traditional pharmaceuticals and fast-growing AI- and tech-enabled supporting industries.
Navigating system changes
At Lombard Odier, we understand that the key to investing in today’s volatile environment is to ‘step back from the noise’. Instead of attempting to react more quickly than the market to every latest development and piece of ‘breaking news’, it is essential that we understand the bigger economic shifts taking place beneath our feet.
Not all of today’s indicators are signs of these deep system changes. We do not believe, for instance, that the weak dollar forecasts an imminent paradigm shift away from the dollar as the global reserve currency.
Dollar weakness is, however, a direct result of Trump’s trade tariffs, which are themselves part of the story of deglobalisation, as major nations return to putting their national interests first and look to secure key strategic industries. As they do, we will see long-term sustainable system changes emerge, such as the growth of renewable energy generation and the recycling of essential energy metals.
For investors, this is a time of great change. It is also a time of opportunity.
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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