Swiss Re Economists Note Stock Market Risk

Swiss Re’s eighth survey of economists’ opinions shows they consider stock market risk to be substantial. The reinsurer’s “Economic Risk Survey,” conducted in October, also indicated that the outlook for growth has slightly deteriorated since the last survey in April.

“According to the 45 economists surveyed by Swiss Re in October, the probability of a stock market crash – defined as a 25 percent decline in a major stock market index – is around 13 percent for the US and Europe, up from 11 percent in April,” said the bulletin. “In the last 40 years, the S&P 500 Index has only once, in 1974, fallen by more than 25 percent. The German DAX stock market index has fallen in four years by more than 25 percent.”

Swiss Re’s survey reflects “some recent signs of weakening in the global economy.” It notes that “survey respondents gave only a 49 percent probability of US growth exceeding 3 percent next year, down from 72 percent previously.

“For Europe, however, the outlook for growth has improved with respondents giving a 33 percent probability of growth being above 2 percent in 2005, compared to 19 percent in April. ”

The survey also concluded that most participants “consider inflation risks to be minor and reduced from the April survey. The likelihood that the US economy experiences average Consumer Price Index inflation of 4.5 percent or more for the next three years is 7 percent, down from 8 percent in April’s survey, while in Europe it is 3 percent, down from 4 percent. Respondents rated the risk of falling prices over the next five years to be around 3 percent in both the US and Europe.”

Swiss Re’s biannual “Economic Risk Survey” solicits the opinions of approximately 50 economists from Europe and the United States and focuses on the probability of economic performance substantially deviating from the general economic consensus. The latest survey was conducted from 7 October to 27 October 2004.

Topics USA Europe