Politics

Shutdown Could Slow Economic Growth by One-Fifth

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If the government shutdown had never happened, the United States economy would have likely grown by about 2.5 percent in the year’s final quarter. But experts are predicting that the shutdown will cut 0.5 percent from that number, removing one-fifth of the expected growth.

Goldman Sachs economist Jan Hatzius issued a report on Friday, noting that much of that loss will come from the furloughs of federal employees.  If the shutdown continues, the loss may grow beyond this initial prediction.

Market uncertainty from the shutdown is also to blame for a sizeable portion of the stunted growth.

Said Hatzius, “Overall, this implies downside risk of around 0.5pp to our forecast of 2.5% real GDP growth in Q4, but we don’t expect the effect to become entirely clear until an agreement has been reached.”

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This report does not include the consequences of a debt-ceiling crisis. If the U.S. does not raise the debt limit, the economy could be hit much harder.

If current reports are any indication of the future, however, politicians will likely come to some sort of agreement before the debt-ceiling deadline on October 17. Congress and the president are working toward striking a “grand” bargain that will both stop the shutdown and raise the debt limit so that the country can pay its bills.

President Obama did not meet with party leaders this afternoon as expected, but still seems hopeful that Republicans and Democrats will iron out their differences before the economy is severely wounded.

"The president's 3:00 p.m. meeting with the bipartisan leadership has been postponed to allow leaders in the Senate time to continue making important progress towards a solution that raises the debt limit and reopens the government," said a White House statement.

Republican Senator Roger Wicker of Mississippi expressed optimism in an interview with MSNBC, saying, “I'm hopeful we can have something meaningful by the end of the day.”

Sources: Huffington Post, Market Watch, Chicago Tribune