The sky is not falling… yet

Last month I wrote about the ripples that the faltering economy in Greece was sending around the world. Moreover, I questioned what the impact of an economic collapse in China might do to the rest of the world’s economies. This past week, we all began to find out as the DOW lost more than 1000 points in the opening minutes of trading.

The initial panic has subsided for now, but many questions remain as to strength of the world’s leading economies going forward. As one economist stated on MarketWatch.com, “By some estimates, China has accounted for as much as 50% of all global growth in the past few years. A big slowdown or an outright recession in China could dampen growth around the world.”

Another economist writing for The Guardian views China’s market crash as being “worryingly similar” to the 1929 Wall Street crash that began the Great Depression. There, the author points out that China is a huge part of the world economy, demand for oil is low because of the weakness of emerging markets, and developed countries like the U.S. do not have the option of cutting interest rates as they have done to address weak economies in the past.

Despite the fears raised by the recent faltering of the Chinese market, there are some who still remain bullish overall and suggest that these current events are nothing to panic about. So, the sky may not be falling yet. It will be interesting to see how this plays out over the next few weeks after the dust clears. Looking at events through hindsight is almost always easier.