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European Investor Optimism Reaches New Low With Concerns Over The European Economy, According to UBS Index

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Optimism among individual investors across Europe fell to a record low in December on the heels of increased concerns about the prospects for the European economy, according to the Index of Investor OptimismĀ® - EU 5, a joint effort of UBS and the Gallup Organization.

The overall Index of Investor Optimism - EU 5 decreased by 10 points to a level of -38 points in December, down from -28 in November, the lowest measure since the Index - EU 5 baseline survey was conducted in October 2001 (Table 1). The decline can be largely attributed to investors' dim outlook for European economic growth and employment (Table 2). Fifty-eight percent of investors are pessimistic about economic growth over the next twelve months, up from 54 percent in November. At the same time, the share of investors who are very pessimistic or somewhat pessimistic about the prospects for the employment market climbed to 65 percent from 59 percent last month.

This month investors were asked how likely they believe it is that the European economy will enter a prolonged period of stagnation, similar to the Japanese experience. Notably, nearly half of investors, 45 percent say this scenario is very likely or somewhat likely, compared with 49 percent who believe it is somewhat or very unlikely.

In contrast to the gloomy assessment of the European economy, investors' outlook for financial markets continued to stabilise. Those surveyed expect that the stock market will provide an average rate of return of 6.9 percent over the next 12 months, slightly up from 6.5 percent in November. Moreover, 49 percent of investors are optimistic that the year 2003 will be better for global markets than 2002, compared with 27 percent who say they are neither optimistic nor pessimistic, and 23 percent who are pessimistic (Table 3). Overall,18 percent of investors report that 2002 was the worst year ever for their personal portfolio; 38 percent characterise 2002 as a bad year; 36 percent say it was an average year; 6 percent report it was a good year; and just 1 percent say 2002 was the best year for their portfolio.

London, December 23, 2002