Until recently international financial markets had been remarkably resilient in the face of the massive economic upheavals experienced by many Asian economies. But with Russia now joining the list of troubled economies and speculators targeting a range of other currencies in Latin American and even in some smaller European economies, the fall-out is finally being felt in the main international stock markets. European markets fell heavily on Friday, and while Wall Street recovered from its lowest levels in late trading, further volatility can be expected. Investors will watch closely as Russia tries to sort out its debt, a task made more difficult yesterday when President Yeltsin sacked his entire government.
On the face of it, the crisis in Japan's banking system, the problems in Russia and the pressures on emerging economies in Latin America, central and eastern Europe and parts of Asia may seem unrelated. But there are common themes. Starting in Asia over a year ago, investors began to question whether the currency values being maintained by governments were sustainable. In turn, this reflected fundamental concerns about the economies themselves.
A range of currency devaluations followed, leading to great turbulence as investors pulled out funds and the financial systems of the countries involved came under pressure. Investors who have seen a range of currencies devalue over the past year are now fearful of who will come next, and the resulting pressure on emerging market currencies threatens a domino effect of devaluations, as happened in south-east Asia.
The main financial markets - from which the Irish market takes its cue - have become nervous in the face of these developments. For European markets events in Asia may have seemed a long way off. But the Russian crisis is on the EU's doorstep, while German markets were unsettled last Friday by pressures emerging in Poland. The US markets have always kept a closer eye on Asia, but are now also unsettled by turbulence in Latin America. Meanwhile Mr Clinton's problems and the attacks in Sudan and Afghanistan provide further reasons for caution on Wall Street.
These uncertainties come as equity markets are trading at high levels. Many big fund-managers on both sides of the Atlantic were already thinking of taking a profit from the market gains of the past few years. Now they have further reason to think twice about their investment strategy. And they must also consider the impact of the events of the past year on the outlook for global economic growth. Forecasters have not yet revised down their predictions for international growth for next year, but many are actively considering doing so.
Against this backdrop, further volatility in international markets is on the cards. This is bound to be reflected in the Irish stock market, which is heavily affected by the US and London markets. The likely impact of the latest events on economic growth internationally and in Ireland is difficult to assess. But the likelihood is that it will act as a brake on international growth, meaning lower interest rates but less buoyancy as we move into 1999.