Given the already precarious state of the US economy there were fears of a more lasting effect on global trade and growth, threatening to send the world economy into recession. But by the next day European financial markets seemed to have stabilised. The shock in itself, however horrific, will not necessarily trigger recession. But this does not mean that business as usual will resume. The big unknown is the impact of an American counterstrike.
An American slowdown can translate into a global recession. The main transmission mechanism is the dependence of other economies on the US for their export trade and on global credit markets centred there. The more a country depends for growth on exporting to America, the more the economy will head towards recession. Similarly with finance, the more a nation depends on external borrowing to replace maturing debt, the more adversely it will be affected.
