Back at the beginning of January, I predicted on Herald Scotland that the world economy would experience at least one major shock in 2016.

Well, we are only just past Lent and it seems that shock has arrived. The fall in global markets that began at the start of 2016 has now turned into a rout. Prices are seemingly in freefall, with possibility that a worldwide panic has begun which could have disastrous consequences on the real economy.

The clever folks at Goldman Sachs predicted last week that there was ‘just’ a 25 per cent risk of a recession in the industrialised countries over the next four quarters. I wonder if they are starting to revise that now.

I claim absolutely no credit for my prediction coming true so soon. In fact, none of the possible reasons for an economic shock that I cited – China’s slowdown, weakness in emerging markets, the US raising interest rates again – has caused this current market turmoil.

Instead, we have had a series of policy decisions and statements around the world which have really spooked the markets.

First, the Bank of Japan announced a move to negative interest rates on government bonds. Let’s just pause for a minute and consider what that means. Investors are being asked to pay for the privilege of lending money to the BoJ. That sounds like a scene from the financial equivalent of Alice in Wonderland. There has to be something seriously wrong with your economy to make a move like this. And we know that Japan has been in the economic doldrums for the best part of two decades now.

After trying every stimulus possible in recent years, what the Bank of Japan hoped to do was to give investors a little nudge away from the ‘safe haven’ of government bonds, kick start more investment in the private sector and introduce a bit of inflation into the economy. There was a very brief rally in Japanese stocks, but then the law of unintended consequences kicked in.

A few days after the BoJ made its move, global investors started worrying about the potential impact on the profitability of the banking sector around the world. If other countries followed Japan’s example (and the European Central Bank) and moved interest rates into negative territory, surely that would have a drastic impact on bank profitability or even the stability of the whole industry.

That question seemed to remind investors that those same banks are now sitting on a whole pile of debt from the energy sector, where prices are also in freefall and default on lending much more likely. So guess what? Banking stocks, which just a few weeks ago were being talked about as a relative safe haven for investors, have suffered massive sell-offs.

As Arthur Montford used to say during Scotland games, ‘Oh dear, oh dear, oh dear’. Once you start questioning the stability of the banking sector, we know from 2008 which terrifying rabbit hole we are staring down.

If that wasn’t bad enough, markets were driven lower by the cautious comments of US Federal Reserve Chairman Janet Yellen that were interpreted – rightly or wrongly – as a sign that the American economy could be weakening.

And then to top it all, today the central bank of Sweden – the Riksbank – decided to go even further than the Bank of Japan by cutting its benchmark interest rate to minus 0.5 per cent, despite the fact that such a move seemed to bear no relation to the health of one of the strongest economies in the industrialised world right now. So if your preference is to lose money on your capital at a rate of 0.5 per cent, please lend it to the central bank of Sweden. They’ll be happy to take your money!

What on earth is going on here?

The truth is that this is a race to the bottom by governments who have run out of ideas about how to get economic growth back to pre-2008 levels. Offering negative interest rates is attractive because, in theory, it should lead to a lower exchange rate for your currency and therefore higher exports.

That’s why Sweden, with its relatively high economic growth and low unemployment, thinks it’s a good idea to drive rates below zero. And it looks like the European Central Bank will follow the trend next month by further cutting its own rate, which is already at minus 0.3 per cent But here’s the first problem with that. What happens if everyone else decides to follow suit? Where on earth does that lead us in this topsy-turvy Alice in Wonderland global economy? No one can predict because it hasn’t happened before.

The second problem is that markets don’t react the way that the policy makers think they will. This round of negative interest rate cutting has, as described, caused a run on bank stocks and global panic which could turn into a global recession. Great job everyone!

There’s no doubt that the world is facing real problems right now, which may lead to another period of economic downturn. As well as the slowdown in China, struggling emerging markets, the eternally sluggish Eurozone and record-high levels of debt everywhere, we now have the wild card of continually falling oil prices. In Scotland, we can see that the North Sea industry is in very serious trouble. Again, we are in uncharted territory where the past is no guide to future events.

But what’s fascinating for me as a communications professional is how much words matter in all this. If the policy makers get their script wrong, as Janet Yellen arguably did the other night, it can cause a whole world of economic pain. The Bank of Japan’s decision to introduce negative interest rates was actually welcomed by markets at first.

That lasted until the minutes of the meetings were published, revealing that several board members expressed very public doubts about the move. When the Chinese markets were in turmoil a few weeks ago, a prominent member of the government admitted that much of the problem was caused by poor communication on their part.

Who knows where we go from here. But with this terrible sense of panic in the air, policy makers around the world need to pick their words very, very carefully from now on, and not make them, as Alice said to Humpty Dumpty, ‘mean so many things’.