The risk of another global recession escalated Friday after Britain’s stunning decision to leave the European Union plunged financial markets into freefall and tested the strength of the safeguards put in place since the last downturn seven years ago.
Wall Street was slammed from the moment trading opened, with the Dow Jones Industrial Average dropping more than 500 points within minutes. Though it pared those losses over the morning, it was back down 600 points, nearly 3.5 percent, by mid-afternoon. The broader Standard & Poor’s 500-stock index and the tech-heavy Nasdaq suffered declines of more than 3 percent.
The gut-wrenching moves were the latest sign of panic that began when the results of Britain’s Thursday referendum began to trickle in overnight. Japan’s Nikkei index temporarily halted futures trading amid the sweeping global selloff and closed down 8 percent. The turmoil then hit European stock markets, with France’s major index also dropping 8 percent while Germany’s fell nearly 7 percent. The London-based FTSE 100 initially plummeted nearly 9 percent but ended the day with a 3 percent decline.
International policymakers have long warned that the sluggish recovery from the Great Recession has left the world economy more vulnerable to another downturn. Recurring crisis over government debt in Europe, the bumpy slowdown China and the collapse in oil prices have already battered prospects for global growth. Britain’s exit from the EU – popularly known as “Brexit” – could prove to be the final straw, experts said.