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Investors Worry Strained Relations Between U.S. and European Allies Will Impact Economy, According to UBS Index

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Optimism across the EU 5 continued to slide in March as investors expressed concerns that a war in Iraq and tensions between the U.S. and some European countries may harm 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 -57 points in March, down from -47 in February, 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 the European economy (Table 2). Sixty-two percent of investors are pessimistic about economic growth over the next twelve months, up from 57 percent in February.

Importantly, fewer investors, 54 percent in March compared to 60 percent last month, believe Europe is most likely to experience a moderate economic recovery over the next year (Table 3). This is compared with 31 percent who think economic weakness will continue, up from 27 percent in February; 11 percent who predict a worsened economic situation; and 2 percent who foresee a strong recovery.

European investors continue to view a war in Iraq as the largest threat to the financial markets, with 73 percent of those surveyed saying they expect a war to have an extremely or somewhat negative impact. In contrast, 13 percent of investors believe a war with Iraq will have a positive impact on the markets, and 12 percent foresee neither positive nor negative effects.

London, March 24, 2003