Why stock market crashes don't necessarily mean the economy is in trouble

'Easy money' has been helping the financial markets. Credit: PA

Trouble on the stock market doesn't mean the economy is in trouble.

In fact the global economy is doing well, and it is precisely because an economic upswing is underway that investors are rattled.

Their concern it that, in the face of strengthening data on employment and growth, in the United States in particular, central banks will respond by withdrawing support for the economy.

It's worth remembering that interest rates - in the UK and elsewhere - are still set at "emergency" levels, ten years after the financial crisis began.

Monetary policy is set to support the economy but there's little doubt that in recent years it has also turbo-charged the performance of financial markets.

The worry is that cheap money is now coming to an end.

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The consensus is that we are witnessing a market correction, not a crash.

That share prices have been on an extended run, which has now come to an end, means exuberance has suddenly turned to anxiety. All part of the waxing and waning of markets.

A few bad trading sessions is obviously bad news for anyone who holds shares - whether directly on indirectly in pension schemes - but it's hardly a disaster.

The scale of this sell-off, however, is extraordinary.

This squall will probably blow out, but if it persists it could trigger a wider-spread loss of confidence which would be felt across the economy.