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 Friday 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.
"We think the time has come to consider that a financial market crash today may push a world economy teetering on the verge of a contraction over the edge," said Carl Weinberg, chief economist at High Frequency Economics.
Still, the global economy could very well steer clear of recession once again, instead maintaining the slow-growth status quo that has defined the recovery so far. Though international policymakers acknowledged the Brexit vote carried "adverse implications for financial and economic stability," they expressed confidence in the health of the banking system. In a joint statement, the Group of Seven finance ministers and central bankers said they would work together to ensure that markets continued to function smoothly.
"We affirm our assessment that the U.K. economy and financial sector remain resilient and are confident that the U.K. authorities are well-positioned to address the consequences of the referendum outcome," they said.
Beyond the immediate financial volatility, Britain's decision unleashed fresh uncertainty over the future of the nation's economy and its relationship with the rest of the world. Many analysts predicted that Britain's economy could contract if businesses withhold investment and wary households rein in spending until a new fiscal order is established. S&P warned that it could downgrade Britain's credit rating "by more than one notch" in the wake of the vote.
Britain has at least two years to negotiate the terms of its EU departure and will have to strike new trade agreements with a host of nations. Though President Barack Obama had warned earlier this year that Britain would go "to the back of the queue" in any trade talks, the White House issued a statement Friday that called both Britain and the EU "indispensable partners."
"The people of the United Kingdom have spoken, and we respect their decision," Obama said. "The special relationship between the United States and the United Kingdom is enduring."
Investors around the world appeared to be caught off-guard by the outcome of Britain's referendum. As late as Thursday afternoon, public opinion polls gave a slight edge to the campaign to remain. But as the vote tallies rolled in overnight, it became clear the polls had been wrong - and traders started scrambling for the exits.
Alongside the sweeping sell-off in global stock markets was a rush into safehaven investments such as gold and U.S. government bonds. Gold prices hit a two-year high, while the yield on 10-year Treasury notes dropped to 1.57 percent, a level not seen since 2012. Yields move in the opposite direction of prices.
"Financial markets react to unexpected but also high-magnitude events," Clem Miller, a portfolio manager at U.S.-based Wilmington Trust, said from London. "This is a high-magnitude event for financial markets."
In London, Prime Minister David Cameron - a leading proponent of remaining in the EU - said he would step down because of the result. But even as he gave a timetable for his own exit by fall, he sought to reassure worried markets, calling Britain's economy "fundamentally sound" and saying there would be no immediate changes in the status of immigrants in the country.
Mark Carney, governor of the Bank of England, also moved quickly to assure investors. "We've taken all the necessary steps to prepare for today's events," he told reporters. Carney added that British banks have been stress-tested "against scenarios more severe than the country currently faces."
A similar message was issued by the European Central Bank chief, Mario Draghi, who said the institution was "ready for all contingencies" to help calm market anxiety, including pumping additional funds into the region's banking system.
Xinhua, China's Communist Party-controlled news agency, speculated that the Brexit vote would put downward pressure on global markets, potentially causing China's markets to drop at least 5 percent. After the "leave" vote, Chinese analysts warned of short- and medium-term instability but played down risks to China's economy.
"The economy of U.K. will not collapse. Neither will the euro. It will likely be a one-time blow. If other countries start to follow suit of U.K., though, the euro will have to deal with blows constantly," said Lu Zhengwei, a senior economist at Industrial Bank Co. Ltd.
Central bankers have been flooding the global economy with easy money for years in hopes of jumpstrating the recovery out of neutral. Japan, the ECB and some European countries have instituted negative interest rates, while the U.S. Federal Reserve has ballooned its balance sheet by trillions of dollars. That has diminished officials' power to push back against additional headwinds such as Brexit.
Some analysts even began speculating that the Federal Reserve would have to cut interest rates, just six months after raising them for the first time since the recession amid hopes that the U.S. recovery had solidified. At the very least, economists said, the Fed is likely to remain on hold when it meets again next month.
Even before the Brexit vote, questions were being raised about the health of the U.S. job market and the viability of the recovery. Now, analysts at Morgan Stanley estimated the vote will reduce U.S. growth by 0.6 percent over the course of 2017 in its worst-case scenario.
"Instability in Europe is going to have worldwide repercussions, especially at a time when growth around the world is so low," Cornell University economist Eswar Prasad said.