Bah humbug? If politicians in Washington don’t come to their senses and avoid a government shutdown by the end of the week, the U.S. market could suffer a major blow right around the holidays.
That’s the warning from Beth Ann Bovino, U.S. chief economist for credit history agency S&P Global.
In a written report titled “With A U.S. Authorities Shutdown, Ho Ho Ho Would Become Boo-Hoo,” Bovino cautioned that inability to increase funding for government agencies by December 8 could have a significant impact on client spending in the arriving weeks.
“As being the U.S. market begins to show signs of existence and shake off the doldrums of a gradual recovery, and Americans struck the mall to obtain holiday spirit on because they await the much-anticipated taxes reform (or lower), the timing cannot become worse,” Bovino wrote.
“In particular, if a shutdown were to take place so far in to the quarter, fourth-quarter GDP wouldn’t normally have time to bounce back, that could shake investors and consumers and, because of this, possibly snuff away any economic momentum,” she added.
President Trump has recently said that a shutdown “could happen” and he was first blaming Democrats for threatening to vote against a spending expenses unless there are alterations made to some of Trump’s controversial stances about immigration policy.
Bovino said she still thinks the chances of a shutdown happening are slim. Actually, her report Wednesday is an update in one she put out in August — before a deal was reached just after Labor Evening with Democrats to retain funding going through mid-December.
Investors don’t seem overly nervous either. Shares were flat Wednesday and remain certainly not too much from their all-time highs.
But Bovino conceded that anything can be done in Washington these days.
“Betting the holiday budget on a rational U.S. government may be a risky proposition that leaves the cupboards bare to begin 2018,” she wrote.
Related: How tax reform could hinder innovation in the U.S.
Bovino added that Trump’s rhetoric about Democrats attempting to let found in more illegal immigrants could make negotiations even more difficult.
“The unthinkable possesses suddenly wandered in to the realm of what may come to move,” she wrote,
So how much of popular could the economy have when there is no package? The S&P Global group of economists estimated that a shutdown would trim at least 0.2% items, or $6.5 billion, from real GDP growth for every single week a shutdown lasts.
Government employees will be hurt, as would private contractors who’ll be losing out on getting paid throughout a shutdown.
“Holiday vacations and school trips could be curtailed when hundreds of countrywide parks and monuments are closed for business,” Bovino wrote. “And with the risk of fewer paychecks, some may rethink be it practical to visit home for the holidays.”
But there’s a bigger issue at play as well. Any stalemate on the budget may potentially impact negotiations to raise the government’s borrowing limit, the so-called personal debt ceiling.
“The shutdown and the looming debt ceiling combined could drastically hurt business and consumer sentiment, in addition to the overall economy,” Bovino wrote.
It gets worse.
“Government disarray might dim the afterglow that GOP lawmakers desire to bask found in” if a reconciled tax bill produces it through the House and Senate and is then signed into regulation by Trump.
Related: Here’s what’s in the Senate tax bill — and just how it differs from the House
And then there’s this dire warning.
“The impact of a default by the U.S. government on its debts will be worse than the collapse of Lehman Brothers in 2008, devastating market segments and the market,” Bovino wrote, adding that “the market would fall back to a recession, wiping out much of the progress created by the recovery.”
The last time that the U.S. critically flirted with a default in 2011, S&P wound up downgrading the nation’s credit history — despite the fact that lawmakers did find yourself raising the debt ceiling at the last minute.
Hence here’s hoping lawmakers and President Trump come with their senses and don’t find yourself being the Grinch this holiday season.