US economy, confidence hurt by budget showdown

US economy, confidence hurt by budget showdown

WASHINGTON - The US economy and consumer confidence have taken significant hits from a two week federal government shutdown, economists say, and a major dent to already sluggish American growth is expected.

Even as stock markets rebounded with gusto Wednesday, analysts said there was clear evidence of damage, and warned that a revival of political battles in January could inflict more pain.

The credit rating agencies Moody's and Standard & Poor's estimated that the partial closure of the government from October 1 would slice 0.5-0.6 percentage points from annualized growth in the fourth quarter.

S&P said the shutdown took US$24 billion (S$29.85 billion) from the economy, as hundreds of thousands of government workers stayed at home unsure of getting paid, government contracts were delayed and national parks that drive crucial tourist industries were closed.

Because of that, several economists cut their forecasts for fourth quarter growth to around 2 per cent, barely enough to generate the jobs needed to pull down unemployment.

Many said they expected the Federal Reserve would see the need to keep its stimulus in place through the end of the year, if not longer, to mitigate the drag from the crisis.

"The bottom line is the government shutdown has hurt the US economy," S&P said.

Jim O'Sullivan of High Frequency Economics, added: "Even without an extreme outcome being realised, some damage has been done."

Democrats and Republicans in Congress were expected to pass legislation late Wednesday to end the impasse by funding the government for the first part of fiscal 2014, which began on October 1, and increasing the debt ceiling.

The eleventh hour deal soothed worries that the Treasury could be forced to default on payments, including the debt, in the coming days.

More about

Purchase this article for republication.

BRANDINSIDER

SPONSORED

Most Read

Your daily good stuff - AsiaOne stories delivered straight to your inbox
By signing up, you agree to our Privacy policy and Terms and Conditions.