U.S. shutdown likely to chip away 0.3% from Q4 GDP
(Reuters) – U.S. economic growth this quarter is likely to be less robust than forecast last month given the erosion of confidence in the wake of the nasty fight over fiscal policy, a Reuters survey showed on Thursday.
The fourth quarter had been expected to mark the transition to a stronger pace of expansion. But economists have grown less optimistic after the budget tussle that shut down parts of the government and left the nation flirting with a historic debt default.
“The insanity in Washington is affecting consumer and business confidence. That’s the huge restraint to growth,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
The survey of over 70 economists taken from October 11 right up until Wednesday, when a last-minute deal ended the budget standoff, forecast GDP growth at a 2.3 percent annualized rate in the October-December quarter.
While that was only marginally lower than the 2.5 percent economists had estimated in September, the risk is high that growth could come in even lower since the shutdown of the federal government lasted longer than the one week that many economists had expected.
The shutdown, which started on October 1, was estimated to chip away around 0.3 percentage point from annualized fourth-quarter gross domestic product.
The government is expected to reopen soon, after the U.S. Congress approved an 11th-hour deal to temporarily fund the government and raise the country’s borrowing authority until February 7.
Growth for the first quarter of 2014 is seen at a 2.6 percent pace, unchanged from last month’s survey. Some economists, however, say this forecast is optimistic given that the fiscal policy tension in Washington remains unresolved.
“The damage has been done, political wrangling will continue, and the Fed is likely to delay its tapering plans,” said Jan von Gerich, strategist at Nordea.
Concerns about the economy’s near-term outlook suggest the Federal Reserve will not be in a hurry to start scaling back its massive monetary stimulus.
The U.S. central bank surprised markets last month by saying it would continue its monthly $85 billion bond purchases, and the consensus was then for a move in December.