Sat, Jan 19, 2019 - Page 10 News List

Analysts unruffled by shutdown

Bloomberg

The US government shutdown is causing some real pain, but economists are largely brushing off the risk to growth.

Analysts project the government would reopen by the middle of next month, though if the closure lasts through March the disruptions would cause economic growth to dip below 2 percent this quarter, according to the median forecast in a Bloomberg survey.

At the same time, just under half say the shutdown increases the probability of a US recession this year.

The relatively sanguine assessment is at odds with some more dire predictions, including by Deutsche Bank AG, and the White House itself doubled the estimated negative fallout.

Even so, the shutdown adds risk at a time when the economy is already projected to slow, and forecasters see the highest recession risk in six years, manufacturing faltering, and consumers and investors are getting more skittish.

“If the shutdown keeps going on throughout the first quarter, it’ll be costly for growth,” Moody’s Analytics Inc head of monetary policy research Ryan Sweet said.

While it probably will not end economic growth given the momentum at the start of the year, “it could leave a more lasting impression, weighing on business confidence, consumer sentiment and investor confidence.”

A separate Bloomberg survey earlier this month saw economists raise the probability of a recession in the next 12 months to 25 percent, the highest in more than six years, amid the government shutdown and the trade dispute with China.

A Federal Reserve Bank of New York gauge put the chance at 21 percent a year from now, the highest since 2008.

In the first quarter, the shutdown would shave 0.25 percentage points from economic growth, according to the median of 30 responses in the survey.

A slight majority of forecasters also said the full-year pace of expansion would be affected.

Among those who do expect an impact, this year’s growth would be cut 0.13 percentage points, according to the median estimate.

With the closure since Dec. 22 now the longest in US history, there is no sign from US President Donald Trump or the US Congress that an agreement is close.

A majority of those polled this week said the closure would end in the first 14 days of next month, while just above a third estimated it would end this month.

One saw a conclusion in the second half of next month and another saw the closure extending into March.

The government shutdown could also affect the unemployment rate, as hundreds of thousands of furloughed government workers could be classified as unemployed.

The survey median is for an unemployment rate of 4 percent this month, rather than holding steady or edging down from last month’s 3.9 percent amid a strong labor market.

The White House on Tuesday doubled its estimate of the cost of the government shutdown on the economy — saying it had not been counting the effects on more than 1 million government contractors.

Council of Economic Advisers chairman Kevin Hassett told reporters the administration’s new estimate of the shutdown’s cost to economic output is a reduction of 0.13 percent every week, not 0.1 percent every two weeks as previously forecast.

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