As the threat of a partial government shutdown looms, experts are weighing in on the potential economic implications. While the lasting effects of previous shutdowns have been relatively limited, the current fragile state of the economy raises concerns that this time could be different.
Weighing the Risks
According to CNBC analysis, government shutdowns have historically been "nonevents" for both markets and the economy. However, this potential shutdown comes at a particularly precarious time, with rising inflation, a weakening labor market, and other headwinds already weighing on growth.
"The economy is fragile and, therefore, something like a government shutdown could become a bigger problem a lot faster than people might think," said Mark Zandi, chief economist at Moody's Analytics.
Potential Impacts
The Congressional Budget Office estimates that even a six-week shutdown could reduce fourth-quarter growth by about 1.5 percentage points, cutting it in half from the previous quarter. And while the economic activity would likely rebound once the government reopens, some losses may be permanent.
"Short-lived shutdowns are usually invisible in the data, but this one will leave a lasting mark," said Gregory Daco, chief economist at accounting firm EY. "Both because of its record length and the growing disruptions to welfare programs and travel."
Broader Implications
What this really means is that the U.S. economy, which is already showing signs of strain, could face an additional setback just as it tries to regain its footing. The bigger picture here is that policymakers will need to tread carefully to avoid compounding the challenges and potentially pushing the economy closer to a full-blown recession.
As bclaudia recently covered, household finances are already under pressure from inflation and other factors. A prolonged government disruption could further strain consumer spending and confidence, with ripple effects throughout the economy.
Ultimately, while the long-term damage may be limited, a partial shutdown at this juncture could still leave a meaningful mark - one that the fragile economy can ill afford. As customamore reports, investors are already on edge, and further economic uncertainty could fuel further market volatility.