For all the hand-wringing and headlines over the fallout of the U.S. government shutdown, most forecasters still don’t expect it to cause too much pain to the economy so long as it doesn’t endure.
Analysts project the government will reopen by mid-February, though if the closure lasts through March, the disruption will cause economic growth to dip below 2 percent this quarter, according to the median forecast in a Jan. 15-17 Bloomberg survey. At the same time, just under half say the government impasse increases the probability of a recession this year.
The relatively sanguine assessment is at odds with some more-dire recent 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, forecasters see the highest recession risk in six years, manufacturing is 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,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics Inc. While it probably won’t end the expansion 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 showed economists raised the probability of a recession in the next 12 months to 25 percent, the highest in more than six years, amid the shutdown and trade war. 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 will shave 0.25 percentage point 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 will be affected. Among those who do expect an impact, 2019 growth will be cut 0.13 percentage point, according to the median estimate.
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Risks to the outlook remain contained, according to Bloomberg Economics, which estimates a 0.3 percentage point drag on first-quarter GDP if the shutdown pushes into February.
“For a significantly larger drag on growth, business and consumer confidence would have to fall to such a degree that companies start curtailing new hiring and capex projects, and consumers significantly reduce their spending on discretionary items,” economist Yelena Shulyatyeva wrote in a report. “This has not yet happened.”
With the closure since Dec. 22 now the longest in U.S. history, there’s no sign from President Donald Trump or Congress that an agreement is near. A majority of those polled this week said the closure will end Feb. 1-14, while just above a third estimated it would end this month. One saw a conclusion Feb. 15-28 and another saw the closure extending into March.