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Definition – What does Contagion mean?

A contagion is a damaging effect that has a tendency to spread. In economic terms, a contagion is an event in one country that has a disastrous impact on the economies of other countries. A contagion has a large effect on economically entwined nations, but it may also radiate out from the originating country in unexpected ways.

ForexTerms explains Contagion

Contagions can’t be explained through traditional economic ties of trade or loss of trade. The causal relationships of a contagion aren’t understood, so the extent of the spillover and the resulting damage to the world economy cannot be accurately predicted. The interconnecting of economies through the corporate structure of multinationals and the actions of various central banks has greatly increased the impact and reach of bad economic news. That said, the net benefit of world trade is greater than the risks of financial contagion.

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