Definition of Contagious term in finance

Contagion is the term used in economics to describe the situation where financial instability in one sector or economy can spread to a different sector or economy. The term comes from the study of contagious diseases.

The reasoning behind contagion is that as the world has developed and become more financially interlinked, economies have become more intertwined and therefore any risk to one of them is likely to have knock-on effects to others.

Ie, Eurozone Debt Crisis - what began as a poor budget deficit in countries such as Greece, Portugal and Ireland spread across Europe to affect France, Italy, Spain and others. Asian Crisis - In the late 90s there was a banking crisis in Thailand which quickly spread across Southeast Asia and then to Latin America.