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Financial markets relaxed over economic impact of shutdown

Financial markets relaxed over economic impact of shutdown
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Financial markets – even in the US – have been pretty laid back about the shutdown.

However, the impasse is fueling worries as to whether the politicians can agree on increasing the amount the US government can borrow.

Unless that debt-ceiling limit is raised in two weeks time, Washington will default on its obligations, dealing a major blow to the economy and sending shockwaves around the global markets.

The government shutdown will do more damage the longer it goes on.

Over 800,000 government employees on unpaid leave will spend less.

The economy will take a forty billion euro hit if this goes on for three to four weeks.

GDP growth could be cut by 0.8 percent for the year.

Still, investors are calm as Patrick Armstrong of Armstrong Investment Managers explained: “It won’t have a major impact. Where it may have an impact is it may create uncertainty. The longer it does drag on the more impact it will have, because it’ll have consequences on consumers confidence, the unemployment rate kicks up as you’ve got government workers who aren’t employed. And it’ll probably create a bit more uncertainty about the budget crisis that’s looming at the middle of this month as well, so the longer it drags on, it potentially may become more material.”

Unless the debt ceiling is raised, the US will run out of money to pay all of its bills at some point between the 22 October and the end of the month, according to the Congressional Budget Office.

All this comes as the US economy struggles out of recession.

We just learned that manufacturing there is doing better than expected, expanding at its fastest pace in almost two and a half years while firms added the most workers in 15 months.

But consumer confidence is fragile, it just slipped to a five-month low,and the shutdown will not help.