What has caused share prices to fall 10 per cent in a month?
More than £46 billion was wiped off the stock market on Wednesday as fears over the health of the global economy caused the biggest dip in share prices for almost a year and a half.
In a blow to savers, the FTSE 100 fell 181 points, 2.8 per cent, to just 6212 - its lowest since the summer of 2013. Financial markets around the world experienced a similar plight. The market recovered slightly on Thursday morning, but is still almost 10 per cent down on its 6880 peak in early September.
Here, in no particular order, are some of the reasons...
1 Greece
There are fears over the stability of the Greek government and its bail-out plans. David Madden, an analyst at IG, said: "It looks like we are entering another phase of the eurozone debt crisis." Greek share prices on Wednesday fell to their lowest level in 2014 as the country headed for an early election. A radical left opposition to the Greek government appears to be gaining momentum, opinion polls suggest.
2 America
The world's biggest economy looks weaker than it did a few months ago. Poor retail figures and a slowdown in manufacturing have put it on the back foot. US retail sales declined 0.3 per cent in September, marking the first fall in seven months.
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The Federal Reserve, America's central bank, may now have to wait longer to raise interest rates. The outlook for America, China and Germany tends to set the pace for global share prices, which have become closely aligned due to globalisation.
3 Ebola
Crises make investors nervous. And nervousness leads to selling shares. Ebola has killed about 4,500 people so far, mostly in Liberia, Guinea and Sierra Leone. This week, it was revealed that a second American nurse has contracted the virus. The disease is spreading, experts said. Anthony Banbury of the UN said: "It is running faster than us, and it is winning the race."
4 Europe
The eurozone could feasibly slip back into recession, analysts have said. And it's not just Greece where there are concerns. Germany, the eurozone's biggest economy, has reported a fall in exports and slashed growth forecasts. Prospects across the Continent had "gone from bad to worse", according to City analysts Capital Economics, which downgraded its growth prediction for the year from 1 per cent to 0.7 per cent.
5 General nervousness
Jitters, they call it. Panic "gripped the market", according to one commentator in the Financial Times. Worries are often caused by global threats to health and security. One example is Ebola, but there are many around at the moment – for example, the geopolitical tensions in Syria, Iraq, Hong Kong and Ukraine. As these situations remain unresolved, traders anticipate difficulties for global companies that rely on exports and imports, as trade is disrupted. Jim Reid of Deutsche Bank said: “We’ve had a steady increase in bad news over the last month and it’s got to a point now where the market is nervous enough that incremental bad news is the straw that breaks the camel’s back.”
6 Deflation threat
Deflation is bad news, generally speaking, for economic growth and so investors are watching with apprehension. Inflation figures have fallen in many parts of the world. In the UK for instance, consumer prices index (CPI) inflation is now just 1.2 per cent – a five-year low.
What is meant by deflation? Essentially, it means that the buyers of goods and services don't trust the price in the shop window; they expect it to be lower next week. For example, someone might put off buying a car for £10,000 thinking that next week it will be £9,900. When the next week arrives, the person delays the purchase again, thinking the price will fall to £9,800 in a few days. And so on.
Ben Yearsley of stockbrokers Charles Stanley said: "The global economy does appear to be under threat, particularly from deflation in Europe, where prices have started to fall, and this could be contagious for the UK."
