US shutdown to affect Korea

US shutdown to affect Korea
A stop sign is seen at dusk next to the US Congress building on the eve of a possible government shutdown.

SOUTH KOREA - The US political deadlock over the 2014 budget proposal by the Obama administration would adversely affect the Korean economy and its financial markets should the government shutdown last as long as the 20-plus days experienced under the Clinton government.

The US, one of Korea's top economic and political partners, this week shut down its nonessential services such as national parks and museums, forcing government staff at agencies, including the Department of Defence, to take unpaid holidays.

This resulted from the two major parties failing to reach an agreement over the budget bill as the Republican-led House of Representatives demanded delays in President Obama's health care reforms.

Uncertainties are growing that the shutdown could last longer than expected as the US is expected to face further political gridlock, this time over debt-ceiling negotiations.

The shutdown would lead to a decrease in federal spending, and thus private consumption, ultimately affecting the growth of the world's largest economy as well as that of export-reliant Korea, the Ministry of Strategy and Finance said in a statement.

Moody's Analytics estimated that a shutdown for two weeks could lower the US' annual gross domestic product by 0.3 per cent, and by 1.4 per cent should it last for a month.

There are no signs yet indicating that global investors are moving to draw their funds out of riskier assets and reallocate them to safer assets.

Analysts and government officials noted that US government shutdowns usually lasted six days on average in the last 17 times since the 1970s.

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