The financial world is reeling. After the most dramatic week since the financial crisis, investors are counting their losses while economists fear the world economy risks a painful recession this year.

Anxiety that global policymakers are failing to tackle the Covid-19 pandemic wiped trillions of dollars off stocks across the globe. The turmoil was compounded by Saudi Arabia launching an oil price war, which threatens to put some US shale producers out of business, triggering debt defaults.

For younger traders in the City, this was their first introduction to true panic on the trading floors. Global markets plunged twice, on Monday and Thursday, with losses exceeding the worst times in the eurozone debt crisis.

The FTSE 100 index had already been through two bad weeks, but the last five days inflicted the deepest losses yet on the nation’s pension pots, ISAs, share portfolios and funds. By Friday’s close it had lost 1,096 points, or 17%, shedding £275bn in a week.

Helal Miah, Investment Research Analyst at the Share Centre, said:

“In my 20-plus years in the industry, I find it difficult to remember another week of such momentous moves. Yes, we had some big moves during the financial crisis and sovereign debt crisis and the odd flash crash, yet they never had the extreme one day moves as we have had this week. Following yesterday’s biggest one-day fall since the ‘87 crash, this morning the market opened up by over 6%.

Some investors may ask whether this is the bottom. It could be, but seasoned traders and investors will merely see it as a dead-cat bounce. Those of a more nervous disposition may just want to sit tight until the volatility dies down.”

Even older City heads hadn’t seen anything like it. Oil suffered its biggest crash since the 1991 Gulf War, after Saudi Arabia dramatically vowed to flood the market with supplies.

Saudi ordered its producers to turn the taps up after Russia refused to back an Opec plan to curb output. This shocked the markets, as Covid-19 is already cutting energy demand. Brent crude plunged by a third to $31/barrel, while US crude hit $27. Shares in oil producers across the globe fell too, helping to trigger Monday’s market crash.

Bjarne Schieldrop, chief commodities analyst at Nordic bank SEB, said:

“Saudi Arabia is now selling its oil into Europe at about $25 per barrel and inventories are building rapidly. As the coronavirus crisis now accelerates in the US and Europe, there is little that can save Brent from $20/barrel except for a war in the Middle East or a last-minute Opec+ deal.

“The WTI crude oil price has halted just above the $30/barrel line at which virtually all US shale oil wells are rendered unprofitable.

“The global demand side of the equation is now totally insensitive to lower prices in terms of demand right now. It is not so difficult to imagine that global oil demand declines by 10%.”

America’s bull market celebrated its 11th birthday this week, and promptly stomped off. Both the S&P 500 and the Dow Jones indices of US stocks plunged over 20% from their record peaks, putting them into a bear market.

The end came amid wild swings – usually downwards – on Wall Street, as Donald Trump’s shock ban on EU travel to the US spooked investors. But there was a late rally too, as Trump declared a national emergency to help fight the coronavirus threat.

The bull market began in March 2009, as the world economy began to recover from the economic shock of the last crisis. The speed of its demise shows the next crisis has arrived.

David Kostin, Goldman’s chief US equity strategist, predicted that the earnings of America’s largest companies would fall by 5% this year, as the bull market fizzled out.

“Both the real economy and the financial economy are exhibiting acute signs of stress,” Kostin told clients. But he also believes markets will recover late this year.

“A new bull market will likely be born later this year … By year end, economic and earnings growth will be accelerating, the fed funds rate will be at the zero lower bound, and the impact of any fiscal stimulus will be flowing through to consumers.”

Wall Street’s fear index has soared alarmingly, to levels not seen since the collapse of Lehman Brothers in 2008. The VIX index, which measures volatility, almost doubled during the week, showing serious strains building in the financial world.

The VIX surged as shares tumbled, safe-haven government bond yields hit new lows, and riskier corporate debt prices slid. A high VIX is a sign that market will remain volatile for some time, so investors will be buckling up.

Mohamed El-Erian, chief economic adviser at Allianz, said the markets were preparing for the world economy to tumble into recession.

He warned CNBC:

We are going into a global recession. After what’s been happening the last few days, we are going to see a spread of economic sudden stops.The trouble with economic sudden stops is, it’s not easy to restart an economy.”

El-Erian also predicted that the market volatility wouldn’t end soon, telling Fox News: “I wish I could tell you that I see calmer waters in front of us, but I do not. Waters are going to get even choppier.”

The coronavirus pandemic is threatening to reignite the eurozone debt crisis. Italy faces a deep recession this year, with shops and offices closing under a nationwide shutdown.

Fears that Italy may need a bailout forced Italian borrowing costs up from record lows, which accelerated dramatically after ECB president Christine Lagarde suggested rising bond yield spreads weren’t her responsibility. The European Central Bank rushed out a clarification, but the row distracted from a new stimulus package including ultra-cheap loans for banks.

Ana Andrade, Analyst at the Economist Intelligence Unit, said:

Ms Lagarde’s miscommunication both during the press conference and afterwards has lost her political and leadership capital.

“The fallout from Ms Lagarde’s mishandling of the press conference underlines the importance of communication for central banking. The ECB presented a comprehensive, effective package yesterday, but markets didn’t listen because of how poorly it was communicated.

“The package will thus take longer than usual to feed through and have positive effects. It remains to be seen if Ms Lagarde can recover from this.”