The Strategist

Analyst: Losses of the US economy due to shutdown amount to $ 1.2 billion a week

01/11/2019 - 11:48

Losses of the American economy as a result of suspension of a part of the US federal agencies may amount to about $ 1.2 billion a week if the “shutdown” drags on, says Kevin Hassett, adviser to the US President for economic issues.

Despite the fact that such losses will weaken growth of the country's economy by only 0.05 percentage points, they can make it difficult for the US government to achieve a stable GDP growth rate of 3%, Politico writes.

Work of the federal departments in the United States stopped since December 22, 2018 due to lack of funding. The problem arose because of disagreements between US President Donald Trump and the Democratic lawmakers over allocation of budget funds for construction of a wall on the border with Mexico.

"I do not expect that the economic consequences of the "shutdown" will be serious, of course, if it ends relatively quickly," said Hassett.

About 800 thousand civil servants have been sent on leave without pay or continuing to work, but not receiving salary checks, will be forced to reduce costs, experts say. Private contractors working with the state have already experienced negative consequences of the lost business.

Earlier this week, the Fitch rating agency announced risks of “shutdown” for creditworthiness of the United States, noting that if it drags on, the country risks losing the highest AAA rating.

The US authorities have promised to partially pay salaries of employees sent on forced leave because of suspension of government agencies.

In October 2013, when the shutdown lasted 16 days, government spending on salary payments amounted to $ 2.5 billion, not to mention the lost revenue of state institutions, including, for example, national parks, which also did not work.

In 2018, only a quarter of state operations remained without funding, so spending will approach the level of 2013 only if the situation becomes more serious.

Partial shutdown of the Securities and Exchange Commission (SEC) led to freezing of the IPO market in the United States, while discontinuation of the release of key statistics by the Ministry of Agriculture is creating problems for farmers and traders.

"The longer the shutdown lasts, the more the Ministry of Agriculture will have to catch up when it is over," the expert told the MarketWatch.

Experts note that this situation occurred at a time when uncertainty about prospects for the US economy is already quite high. Global growth is slowing, trade tensions remain serious, and the US economy is beginning to feel effects of rising interest rates.

In this regard, most experts expect US GDP growth to slow down in 2019 and be below Trump's target at 3%.