US shutdown hit growth, economists find

5 Nov 13
Last month’s 16-day US government shutdown is likely have acted as a drag on the country’s economy and could reduce growth by as much as 0.2% in 2013, economists said today

By Richard Johnstone | 5 November 2013

Last month’s 16-day US government shutdown is likely have acted as a drag on the country’s economy and could reduce growth by as much as 0.2% in 2013, economists said today.

In its Global economic forecast, the London-based National Institute of Economic and Social Research said growth was picking up among the advanced economies, supported by ‘accommodative’ monetary policies.

However, it reduced its projection for growth in the US in 2013 from 1.7% predicted in August, to 1.5%. 

Fiscal policy in the US ‘has been a substantial drag on the economy, both directly and through the confidence impacts of the current political impasse’, the institute said today. The federal government was closed from October 1 to 16 after Congress refused to authorise spending commitments. 

The report added that, as a result, it now seems unlikely that the Federal Reserve’s decision will begin tapering its quantitative easing asset purchases until at least early 2014. The Fed is currently buying $45bn of US government debt, and $40bn of mortgage-backed securities, each month to support the economy.

Overall, the review expects the world economy will grow by 3% this year, and by 3.8% in 2014. Output has picked up slightly in many advanced economies, while it has slowed in some key emerging market economies.

The report concluded that the upturn in Japan has been sustained following Prime Minister Shinzo Abe’s expansionary fiscal and monetary policy programme, known as Abenomics. Growth in the country is expected to reach 2.1% this year and 1.7% in 2014.

NIESR also highlighted that ‘uneven’ growth has returned to the eurozone, partly as result of a slowing of fiscal consolidation being undertaken by national governments. However, the combined economies of the currency bloc are still predicted to contract in 2013, with output falling by 0.3% overall. Growth of 0.9% is expected in 2014.

The analysis warned that, more than five years after the collapse of Lehmans Brothers precipitated a global financial crisis and then a deep recession, many economies were ‘far from out of the woods’.

Among the risks is that financial markets are likely to remain volatile in anticipation of the eventual end of the period of near-zero short-term interest rates and unconventional monetary policy, such as quantitative easing, in many major economies. 

Continued political brinkmanship in the US over the direction of fiscal policy has also increased the potential for instability, the report added.

In addition, this year’s slowdown in some key emerging market economies means overall global growth could suffer a ‘prolonged’ cut.

For example, 2013 growth in India has been revised down from 4.9% to 3.7%, while the projection for 2014 is also down, from 5.9% to 5.5%.

However, the estimate for growth in China this year has been revised up from 7.4% in August to 7.6% now.

Did you enjoy this article?

Related articles

Have your say

Newsletter

CIPFA latest

Most popular

Most commented

Events & webinars