Tuesday, October 3, 2023

Goldman says US government shutdown on spending is ‘more likely than unlikely’

Analysts at Goldman Sachs say in a research note that a government shutdown is “more likely than unlikely” this year amid policy differences over spending that could temporarily hamper economic growth.

Economic analysts at Goldman Sachs said previous closures, which occur when Congress fails to pass annual spending legislation, stemmed from a disagreement over the amount or distribution of spending or a dispute over other issues a party to spending legislation wants to address.

“Right now, both types of risk are at play,” Goldman said in the note.

According to Goldman, a full-scale government shutdown could cut growth by about 0.15 percentage points per week directly, while factoring in the modest impact on the private sector could add up to 0.2 percentage points per week.

However, analysts said growth would pick up at the same pace in the quarter after the government reopens.

According to the notice, markets have not reacted strongly to three previous closures in 1995–1996, 2013, and 2018–2019.

Stock markets flattened or rose at the end of the government shutdown, “although in any case, at some point in the days after the shutdown began, stock prices were lower than they were at the beginning,” analysts said, while 10-year Treasury bonds posted a yield lower after the shutdown began “more constant”.

Goldman Sachs analysts said the shutdown was “not a given,” signaling support for a temporary extension after the fiscal year ended Sept. 30.

They also noted that, compared to the severe macroeconomic impact of not raising the US debt limit, the less dramatic economic impact of a shutdown “also makes it more likely that Congress will not act in a timely manner.”

World Nation News Desk
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