Investors are exaggerating the risks of a meltdown in the global economy, but their fears could become a self-fulfilling prophecy if central banks fail to contain the fallout, economists have warned.
A sell-off in global stock markets gained momentum on Monday as traders worried that the US Federal Reserve was taking too long to cut interest rates in the light of last week’s weak jobs data, while the Bank of Japan was setting too bold a course towards tighter monetary policy.
Economists said the extreme market reaction — with volatility reaching its highest level since the onset of the Covid-19 pandemic — was accentuated by other factors, including worries about China’s economy, a fading of the “Trump trade”, and waning hopes of an AI-driven growth windfall.