US government shutdown to crimp growth, recession risk steady: Reuters poll

US government shutdown to crimp growth, recession risk steady: Reuters poll

BENGALURU – Reuters
US government shutdown to crimp growth, recession risk steady: Reuters poll

Volunteers pack bags of food and supplies at World Central Kitchen, the not-for-profit organization started by Chef Jose Andres in Washington on Jan. 22. The organization devoted to providing meals in the wake of natural disasters, has set up a distribution center just blocks from the U.S. Capitol building to assist those affected by the government shutdown. (AP Photo/Andrew Harnik)

U.S. economic growth will take a hit this quarter from the longest-ever government shutdown, keeping the Federal Reserve on the sidelines until at least its April 30-May 1 meeting, a Reuters poll of economists showed.

But the probability of a U.S. recession in the next 12 months held steady from last month at 20 percent, according to the median forecast, while the chance of a recession in the next two years was also steady at a median 40 percent.

The latest Reuters poll of over 100 economists taken Jan 16-23 also showed a cut to the 2019 quarterly growth outlook, in line with a recent run of weaker U.S. economic data pointing to rougher sledding for the economy this year than last year.

The partial government shutdown affecting 800,000 federal workers has lasted more than a month and is expected to hurt the already-slowing economy.

The Senate is preparing for a vote on Jan. 24 to fund the government for three weeks.

Nearly 60 percent of about 50 economists who answered an additional question said the shutdown will have a significant impact on first quarter gross domestic product growth.

When asked how much of an impact the shutdown would have on U.S. GDP for this quarter, the median was for a 0.3 percentage point trim. But forecasts ranged between 0.1 and 1.3 percentage points.

Analysts expected the U.S. economy to grow at a 2.1 percent annualized pace this quarter, down from 2.3 percent forecast last month, followed by 2.3 percent in the second quarter and then slowing to 1.9 percent by the end of the year.

Growth forecasts were trimmed for each quarter this year.

“If the shutdown were to last for the entire quarter, it could subtract around a full percentage point from Q1 inflation-adjusted output growth. In a worst-case scenario, real GDP could indeed contract in Q1 if this Congressional impasse remains unresolved,” said Brett Ryan, senior U.S. economist at Deutsche Bank.

“However, we have not made any changes to our current-quarter real GDP growth forecast...given the uncertainty around these estimates.”

A deep sell-off in financial markets last month drove several U.S. stock indexes closer to bear market territory, and pushed expectations for the Fed to slow the pace of its rate hikes. Fed officials have also voiced growing concerns about the economy.

Last week, New York Fed President John Williams called for “prudence, patience and good judgment” among policy makers.

Nearly one-third of 105 economists predicted the U.S. central bank would either hike rates only once or keep the fed funds rate unchanged at 2.25-2.50 percent in 2019. That was notably higher than the 11 of 101 respondents in the previous poll.

United States, government shutdown, recession