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US government shutdown would hit Q4 GDP, sap momentum: S&P economist

A possible U.S. government shutdown in the fourth quarter would shave 0.2 percentage point, or $6.5 billion, from real GDP growth each week it lasts, and possibly snuff out economic momentum, S&P Global Ratings' U.S. chief economist said in a report.

"Given the shutdown would begin later in the fourth quarter, the hit to quarterly GDP growth may be even larger because there would be little to no time to regain the initial losses once government facilities are back in operation. Along with this, economic activity, including lost productivity from furloughed government employees, would not be recovered. Not the way you want to ring in the holiday season and the new year," Beth Ann Bovino said in the report. "Fourth-quarter GDP would not have time to bounce back, which could shake investors and consumers and, as a result, possibly snuff out any economic momentum."

S&P still sees the likelihood of a failure to meet the Dec. 8 deadline to extend funding for government agencies as highly unlikely given the administration is Republican and the GOP holds majorities in both the House and the Senate. But indications that President Donald Trump wants to press his immigration reform as part of the negotiations and that any refusal by Democratic lawmakers to comply with this would mean no deal, means that "the unthinkable has suddenly wandered into the realm of what may come to pass," Bovino said.

Yet the effects of a shutdown would be minor in comparison with failure to extend the debt ceiling by the spring, which would lead to the government running out of money.

"While we believe the Senate will pass its deal to raise the debt ceiling, the impact of a default by the U.S. government on its debts would be worse than the collapse of Lehman Brothers in 2008, devastating markets and the economy," Bovino said.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.