Risk of Stock Market Crash in Europe and US Grows

May 14, 2003

ZURICH (AFP) - The risk of a stock market crash on either side of the Atlantic has increased substantially over the past six months, according to a survey of top international economists released by the reinsurance company Swiss Re.

The estimated probability of a crash involving a 25 percent slide in a major stock market index has risen from 16 percent to 21 percent in the US and from 17 to 23 percent in Europe, Swiss Re said in a statement Wednesday.

The survey examines the risk that economic performance might deviate substantially from general forecasts every six months, and is based on the opinions of 45 European and US economist twice a year.

The poll found that the likelihood of a persistent bear market has grown only marginally in the United States, from four percent to six percent, since the last survey in October 2002, while it has remained stable in Europe at five percent.

The new survey conducted in April also found that the risk of deflation was small, with the likelihood that prices would fall over the next five years rated at about three percent in both Europe and the United States.

The economists also cut their expectations for very low inflation in the short term, estimating that there was an eight percent risk of inflation below one percent in Europe, compared to a 12 percent risk rating in the last survey in October.

In the United States, the probability of low inflation has dropped from 18 percent to eight percent over the last six months.

The survey also indicated a marked increase in expectations of low growth in both Europe and the United States.

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