Business & Economy

US government staring at shutdown with economy in delicate spot

New York, Sep 30 (EFE).- The United States on Saturday faces the possibility of a shutdown of the federal government, which comes at a delicate moment for the world’s biggest economy.

The government shutdown has become almost an annual affair given the divide between Republicans and Democrats in the different branches of power.

With just a few hours left before federal funds expire for fiscal year 2023, it seems unlikely that the Congress will agree to even pass a short-term funding plan to keep federal agencies running until the 2024 budgets rolls out.

The biggest hurdle is a small but influential group of Republican representatives allied with former President Donald Trump (2017-2021).

These representatives are unhappy with the cessions of House Speaker Kevin McCarthy, to the White House earlier this year to approve a plan that prevented the country from going into default for the first time in its history.

While there would be devastating consequences for the US economy in the case of a default of public debt, most analysts agree that a government shutdown, at least immediately, would not have a major impact.

In an analysis of the possible consequences of the closure published on Friday, the chief economist at AXA IM, Gilles Moëc, recalled that these types of situations, quite frequent in the country – there have been 14 since 1980 – have not historically coincided with contractions in the Gross Domestic Product.

However, Moëc warned that the impact is never trivial, and gave as an example data from the Congressional Budget Office that showed that the last closure, between December 2018 and January 2019, and that lasted 35 days, cost the US economy 0.1 percent of the GDP in the fourth quarter of 2018 and 0.2 percent in the first quarter of 2019.

At the moment, there is no clear idea about how long the Administration’s shutdown could last. The closure from 2018 to 2019 was the longest in the history of the country, but most of it was resolved in a few days.

In the current scenario, if the situation continues for very long, the closure could have unexpected consequences.

For example, the agencies responsible for collecting and publishing the country’s main economic indicators – inflation, GDP, unemployment – would stop producing their usual data, which could complicate the work of the Federal Reserve (Fed), which in November is expected to decide on raising interest rates.

Wall Street reflected the prevailing uncertainty as in September it closed with the largest accumulated losses on the S&P 500 and Nasdaq indices, while the Dow Jones Industrial Average also closed the month with significant losses.

For now, if the US lawmakers do not agree to approve a funding plan by 23.59 on Saturday, most government agencies, museums and national parks will close, while hundreds of thousands of officials will stop receiving their salary. EFE


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