Uncertainty rising as U.S. growth weakens
‘This figure accounts mainly for direct costs and hence is a conservative estimate relative to the decrease, including hard-to-estimate indirect costs.’
Daily Tribune‘This figure accounts mainly for direct costs and hence is a conservative estimate relative to the decrease, including hard-to-estimate indirect costs.’
Photo courtesy of PNA
International credit rating agency S&P Global reported Wednesday that the government shutdown will slightly hit gross domestic product (GDP) growth in the United States and will raise the uncertainty in the economy.
S&P estimated in a report that every week the federal government stays closed, the economic growth could be reduced by 0.1-0.2 percentage points.
“This figure accounts mainly for direct costs and hence is a conservative estimate relative to the decrease, including hard-to-estimate indirect costs,” it said in a statement.
The statement said this estimate was based on the effects of previous shutdowns and that lost GDP growth was often partially offset by federal employees receiving retroactive pay after the shutdown ended.
It said approval of annual federal funds depends on a simple majority in the House of Representatives and a 60-vote threshold in the Senate, and added that given the distribution in Congress, ending the shutdown requires negotiations across party lines.
Unrelated to debt ceiling
S&P reminded that the government shutdown in 2013, which occurred during former President Barack Obama’s second term, lasted 13 days, and the Bureau of Economic Analysis estimated that it directly reduced real GDP growth in the fourth quarter of that year by 0.3 percentage points.
“It’s important to note that the government shutdown is unrelated to the federal debt ceiling. The US debt limit was increased by $5 trillion in the July budgetary legislation passed under reconciliation. As a result, the government won’t run out of borrowing capacity during the current shutdown,” it said.
S&P also stated that the government shutdown generally has a marginal impact on the overall economy, but noted that secondary effects could increase over time.
The statement said a prolonged delay in the release of key economic data due to the government shutdown would add uncertainty to the Fed’s monetary policy outlook.
The statement noted that the Fed emphasized that monetary easing is largely data-dependent. “As conditions stand, we expect two more 25-basis-point rate cuts before the end of this year and another 50-basis-point easing in 2026.”
