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United States: U.S. government shuts down, but crisis averted for the time being

October 22, 2013

The U.S. government was shut down for the first time in 17 years in the first half of October and remained closed for 16 days. The episode was marked by heightened discord and complicated negotiations between Democrats and Republicans regarding the 2014 federal fiscal budget and the country's debt ceiling. After much political wrangling and coming dangerously close to default, Congress reached a temporary agreement to fund the government until 15 January and to extend the government's borrowing authority through 7 February.

Estimates of the cost of the government shutdown range between USD 12 and 24 billion, plus a deterioration in consumer and investor confidence. Moreover, the crisis put a damper on the recovery momentum and thus many market analysts have revised down their growth projections for the fourth quarter. FocusEconomics Consensus Forecast panelists expect GDP to expand at a seasonally adjusted annualized rate of 2.6% in Q4, which is down 0.1 percentage points from last month's forecast. With no immediate end in sight to the political feud in Washington D.C., there is a risk that further disagreements will have negative spillover effects on economic stability in the U.S and abroad.

Federal Reserve projections show economic growth ranging between 2.0% and 2.3% in 2013 and accelerating to between 2.9% and 3.1% in 2014. FocusEconomics Consensus Forecast panelists expect GDP to expand 1.6% in 2013, which is down 0.1 percentage points from last month's forecast. For 2014, the panel expects the economy to expand 2.7%, which is unchanged from last month's projection.


Author:, Economist

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