ZURICH (Reuters) - The Swiss government's ditching of a draft treaty cementing ties with the European Union, its biggest trading partner, will lead to lower Swiss economic growth, ratings agency Fitch said on Tuesday.
Faced with stiff domestic opposition to the pact, the cabinet said last week it would break off talks with the bloc, which surrounds landlocked Switzerland.
"Failure to update the bilateral relationship between Switzerland and the EU will lead to the gradual erosion of existing accords and lower Swiss economic growth over time than would otherwise have been the case," Fitch said.
"However, Switzerland’s wealthy, flexible, competitive economy should be fairly resilient and the government’s ample fiscal space remains an important shock absorber," it added.
Fitch said the failure of the framework agreement would impact the Swiss economy in several ways.
Lapsing agreements, for example on cross-border trade, will increase trading costs for Swiss companies, while uncertainty over the future relationship will make Switzerland less attractive as a business location, it said.
Switzerland will also miss out on opportunities to gain additional access to the single market in areas such as the forthcoming energy union, Fitch said.
The government said on Tuesday the economy would bounce back after contracting 0.5% in the first quarter of 2021 and could hit pre-pandemic levels earlier than expected.
(Reporting by Silke Koltrowitz; Editing by Alison Williams)