The prolonged government shutdown USA in the middle of a confrontation between republicans and democrats in Congress over funding could undermine the economic growth in the fourth quarter. However, much of the lost production would be recovered when normal operations resumed.
Economists estimate that The closure is cutting between 0.1 and 0.2 percentage points weekly from Gross Domestic Product growth annualized inflation-adjusted.
The impact of the closure, which is now in its third week, would be felt primarily in consumer spending and in the loss of productivity of federal workers. Around 700,000 federal workers were suspended and almost as many are working without pay, which could force households to postpone spending.
Economists believe the US government shutdown will cause temporary damage to the economy
Thus, many will lose their first full salary on Friday. While, The White House hinted that federal workers are not guaranteed back pay when the Government reopens.
EY-Parthenon Chief Economist Gregory Daco He asserted that although “it will not be pushed into a recession,” there will be “an impact on the economy.” At the same time, he explained that the more this process extends, “the more permanent the losses will be for federal workers that they may have had to cut expenses because they didn’t get paid.
For their part, several states such as New York and Texas warned that food stampson which households with lower incomes depend to complement their basic basket, They will not be available if the closure continues into November. In Pennsylvania, the state government said these payments would end as of October 16.
They warn that long-term effects could be “difficult to gauge”
“There are the short-term effects, which are already occurring, and then there are the long-term effects, which are more difficult to gauge and will depend specifically on when and if it is resolved,” said economics professor at the Boston College Brian Bethune. But as this drags on, these short-term effects will definitely add up.
This vision is shared with the Congressional Budget Officewhose latest assessment showed that the negative effects on the economy “will be temporary” and “will increase with a longer closure.”
During the 34-day shutdown that began in late December 2018, the longest on record, GDP growth nearly slowed in the fourth quarter before accelerating in the January-March quarter.
Financial markets have so far shrugged off the shutdown, which has had knock-on effects on companies receiving government contracts and others seeking permits and certifications.
Oxford Economics estimated that $800 million in new federal awards are at risk of interruption for each business day that the closure lasts, with possible negative effects on the labor market.
“Although contractors can get by with a brief suspension of federal activity, a prolonged closure can significantly affect to their cash flow, which could lead to layoffs, pay cuts or even layoffs,” the economist said. Bernard Yarosfrom Oxford Economics.
Source: Ambito
