Shutdown projected to cause $3B permanent hit to U.S. economy

CBO predicts that just $3 billion in lost gross domestic product will be permanently lost

The federal government shutdown will cause slight permanent harm to the economy — about $3 billion — according to a report Monday by the Congressional Budget Office.

The report says the five-week shutdown has slowed growth in the near term but that most of the lost growth “will eventually be recovered.”

Overall, CBO predicts that just $3 billion in lost gross domestic product will be permanently lost, a modest figure in a $20 trillion-plus economy. By year’s end, CBO says, GDP would be just 0.02 smaller because of the shutdown, which shuttered many domestic agencies. Most of the 800,000 furloughed federal workers are returning to their jobs Monday.

More broadly, the report estimates a drop in GDP growth to 2.3 per cent this year as the effects of President Donald Trump’s tax cut on business investment begin to drop off. It also says that the U.S. budget deficit will hit $897 billion this year.

READ MORE: Workers to get paid ‘in the coming days’

The CBO credits the 2017 tax bill — which cut corporate and individual income taxes by $1.9 trillion over a decade — with a burst in growth last year, but it says that this year “the boost that recent tax legislation gave to business wanes.”

The report comes as the government is reopening after a 35-day partial shutdown. The CBO says the shutdown will have a modest negative impact on the economy, lowering projections of economic growth by 0.4 percentage points to 2.1 per cent in the first quarter, though the economy is expected to mostly make up for it over the rest of the year.

“The shutdown dampened economic activity mainly because of the loss of furloughed federal workers’ contribution to (gross domestic product), the delay in federal spending on goods and services, and the reduction in aggregate demand,” the report said.

“Underlying those effects on the overall economy are much more significant effects on individual businesses and workers,” CBO said. “Among those who experienced the largest and most direct negative effects are federal workers who faced delayed compensation and private-sector entities that lost business. Some of those private-sector entities will never recoup that lost income.”

The CBO Report predicts a $118 billion increase over last year’s $779 billion deficit. It predicts that the economy will grow by 2.3 per cent this year, a slowdown from 3.1 per cent last year. Unemployment would fall to 3.5 per cent in the second half of the year, its lowest point since the 1960s.

READ MORE: Trump announces deal to end record-long shutdown

The report lands in a divided Washington, where neither Trump nor Democrats controlling the House are expected to make curbing the deficit a priority. In fact, Trump and lawmakers are likely to increase spending for the Pentagon and other federal agencies, which would otherwise face cuts from outdated budget caps that are the remnant of the 2011 budget deal. And Congress is ultimately going to face pressure to make permanent provisions of the 2017 tax cuts for individuals that would otherwise expire in 2025.

“Republicans’ massive tax giveaway to millionaires and big corporations is inflicting serious damage on our budget outlook,” said House Budget Committee Chairman John Yarmuth, D-Ky. “We are facing trillion-dollar deficits and an increasingly bleak fiscal future.”

The agency also predicts that Trump’s trade policies — higher tariffs on Chinese goods and products such as imported steel — would have only a relatively modest negative impact on the economy.

Andrew Taylor, The Associated Press

Like us on Facebook and follow us on Twitter.

Just Posted

Mission RCMP have noticed a recent trend in car thefts

Leaving your car unlocked while warming it up makes life easy for thieves

WATCH: Kwantlen artist unveils ‘highlight’ of his career at Ruskin Dam

Brandon Gabriel designed six panels that adorn the dam in Mission

BREAKING: Plecas won’t run in next election if legislature oversight reforms pass

B.C. Speaker and Abbotsford South MLA says he feels ‘great sympathy’ for Jody Wilson-Raybould

Mission firefighters to climb 48 flights of stairs in full gear

Group is raising money for the BC Lung Association

Case where son tried to evict mom ends with judge ordering sale of Abbotsford home

Mom gets back down payment and initial expenses of Signal Court property

B.C. students win Great Waters Challenge video contest

Video, mural and song about saving the salmon claims the top prize

Eight cases of measles confirmed in Vancouver outbreak

Coastal Health official say the cases stem from the French-language Ecole Jules Verne Secondary

Ontario police field complaints over Amber Alert for missing girl, 11, found dead

Some said the Amber Alert issued late Thursday for Riya Rajkumar disrupted their sleep

Former B.C. premier Gordon Campbell accused of sexual touching

Accuser went to police, interviewed by Britian’s Daily Telegraph

B.C. couple attacked with acid, slashed with knife in Vietnam

Warning, graphic images: Man has burns on 80 per cent of his body, slashed with knife

Northern B.C. First Nation clan says ancient tools found at pipeline work site

Archeologists from the Smithsonian Institute estimate one of the stones found dates back up to 3500 years

Man taken to hospital for smoke inhalation, burns after fire at RV park

Firefighters find man suffering from smoke inhalation, burns to face and hands: battalion chief

Wilson-Raybould resignation stokes anger, frustration within veterans community

Liberals have had three veterans-affairs ministers — Kent Hehr, Seamus O’Regan and Wilson-Raybould

Most Read