US shutdown pain yet to infect economic-growth forecasts

Bloomberg

For all the hand-wringing and headlines over the fallout of the US government shutdown, most forecasters still don’t expect it to cause too much pain to the economy so long as it doesn’t endure.
Analysts project the government will reopen by mid-February, though if the closure lasts through March, the disruption will cause economic growth to dip below 2 percent this quarter, according to the median forecast in a January 15-17 Bloomberg survey. At the same time, just under half say the government impasse increases the probability of a
recession this year.
The relatively sanguine assessment is at odds with some more-dire recent predictions, including by Deutsche Bank AG, and the White House itself doubled the estimated negative fallout. Even so, the shutdown adds risk at a time when economy is already projected to slow, forecasters see the highest recession risk in six years, manufacturing is faltering and consumers and investors are getting more skittish.
“If the shutdown keeps going on throughout first quarter, it’ll be costly for growth,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics Inc. While it probably won’t end the expansion given the momentum at the start of the year, “it could leave a more lasting impression, weighing on business confidence, consumer sentiment, investor confidence.”
A separate Bloomberg survey earlier this month showed economists raised the probability of a recession in the next 12 months to 25 percent, the highest in more than six years, amid the shutdown and trade war. A Federal Reserve Bank of New York gauge put the chance at 21 percent a year from now, the highest since 2008.
In the first quarter, the shutdown will shave 0.25 percentage point from economic growth, according to the median of 30 responses in the survey. A slight majority of forecasters also said the full-year pace of expansion will be affected. Among those who do expect an impact, 2019 growth will be cut 0.13 percentage point, according to the median estimate.
New York Fed President John Williams said that the shutdown could cut first-quarter growth by about 0.5 percentage point “or maybe even a percentage point, if it continues.”
“The good news is that when the shutdown ends, if it’s like in the past, the people will get paid whether they worked or not, and then we will see a rebound in GDP after that,” Williams said. For now, with the closure since December 22 now the longest in US history, there’s no sign from President Donald Trump or Congress that an agreement is near.
A majority of those polled this week said the closure will end February 1-14, while just above a third estimated it would end this month. One saw a conclusion February 15-28.