Government Shutdown May Cost Economy Up to $14 Billion, Analysts Estimate

The ongoing federal government shutdown is set to reach its 34th day, marking it as one of the longest in U.S. history. Analysts project that the economic impact could yield a significant loss in real GDP, estimated at up to $14 billion. This situation arises as non-essential federal services have been halted, delaying government payments and curtailing public sector spending.

Economic Consequences of the Shutdown

The Congressional Budget Office (CBO) provides a grim forecast regarding the economic fallout from this shutdown. According to their report, the country could see a decrease in real GDP that would not be recovered. While some economic output loss is typically regained once the government reopens, the CBO indicates that between $7 billion and $14 billion will remain as an irreversible loss.

Short-term Effects

The government shutdown leads to:

• Reduced availability of federal services
• Lower government spending on goods and services
• Delays in food assistance programs such as SNAP
• Decreased private sector spending

The CBO estimates that federal spending will drop by:

• $33 billion for a four-week shutdown
• $54 billion for a six-week shutdown
• $74 billion for an eight-week shutdown

Long-term Economic Projections

Real GDP growth is anticipated to decline through the remainder of the year. The CBO expects the fourth quarter of 2025 to experience growth rates reduced by 1% to 2% compared to what would have happened without the shutdown. Despite a potential short-term rebound following the government’s reopening, this growth boost would ultimately fade.

Prospective Recovery

Furloughed federal employees will likely receive back pay after the shutdown. The anticipated resurgence in federal spending may temporarily enhance GDP growth. However, as this delayed spending is normalized, the economy may experience another period of negative growth.

Market Insights

Additional insights from financial analysts, such as those from Goldman Sachs and JPMorgan, reinforce these economic forecasts. They contend that while the immediate impacts of a short shutdown might be minimal, prolonged disruptions could substantially detract from growth. JPMorgan’s Chief Economist, Michael Feroli, noted that each week of shutdown could reduce annual GDP growth by 0.1 percentage points.

In summary, the ongoing government shutdown poses serious risks to the U.S. economy. With potential losses reaching up to $14 billion in real GDP and various sectors affected, the path to recovery may be complex and extended. El-Balad will continue to monitor this situation as it unfolds.