Can sharp falls in equity markets act as good predictors of downturns in the global economy?

The illustration above charts global industrial production and features the most recent big downturns in recessions (a drop of at least 1% in the three-month average over the space of three months). If you then compare those to movements in global equity prices, you get your answer.
That answer is: no.
Despite the bursting of the dot-com bubble, globally equity prices had only put a 20-30% chance on the 2001 recession. Equity markets managed to predict the 2008 downturn as it happened, but then again so did a lot of other markets. And global equity markets also produced numerous spikes in recession probability that were unfounded, such as in 2002 and 2011. The most recent downturn still only indicates a recession probability of about 15%, well below those earlier false positives.
So why did equity markets all fall together following China’s Black Monday? According to UBS head of fixed income economics Joshua McCallum and fixed income economist Gianluca Moretti: “It is likely because the equity markets are reflecting a growing pessimism about growth prospects for China, and if China is weaker then this will have knock-on effects for the rest of the world. And this might affect the profits of many listed companies that make part of their revenue in China or by exporting to China.
“Secondly, the relative prevalence of index-tracking funds means that when someone is reducing their equity exposure, they will be selling all the equities in the index. So someone selling the S&P 500 or FTSE 100 index will be sensibly selling companies that export a lot to China, but will also rather less sensibly be selling companies that cater to the domestic market.”