Trump adviser warns of zero growth if shutdown lingers this quarter

Trump adviser warns of zero growth if shutdown lingers this quarter
© Greg Nash

President TrumpDonald John TrumpTrump nominates ambassador to Turkey Trump heads to Mar-a-Lago after signing bill to avert shutdown CNN, MSNBC to air ad turned down by Fox over Nazi imagery MORE’s chief economist said Wednesday that the partial government shutdown could wipe out an entire quarter of gross domestic product (GDP) growth if it lasts until the end of March.

Kevin Hassett, chairman of the White House Council of Economic Advisers (CEA), said Wednesday that the U.S. economy could see little to no growth in the first quarter of 2019 if the shutdown continues.

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“It is true that if we get a typically weak first quarter and then have an extended shutdown that we could end up with a number that’s very, very low,” Hassett told CNN on Wednesday, the 33rd day of the shutdown.

When asked if the U.S. could see no growth at all in the first quarter, Hassett said, “Yes, we could,” if the shutdown lasted until the end of March.

The CEA has projected 1.7-percent annualized GDP growth for the first quarter, but estimated that each week of the shutdown could shave 0.1 percentage points off that total. At that rate, the GDP growth would fall 1.2 percentage points by the end of March.  

Hassett said the combination of a shutdown and usual economic slowness between January and March could quash growth in that quarter entirely, but that the U.S. economy would bounce back immediately.

“Then again, the second-quarter number would be humongous if the government reopened,” Hassett said, adding that it could rise as high as 4 or 5 percent.

More than 800,000 federal workers have missed a paycheck since the shutdown started in December. Thousands of federal employees have missed mortgage payments, relied on food pantries and struggled to make ends meet, and consumer sentiment has plunged during the battle between Trump and congressional Democrats.

The White House has sought to play down the long-term consequences of the shutdown, insisting the economy would rebound immediately once Trump strikes a deal with Democrats.

National Economic Council Director Larry Kudlow said Tuesday that he expects to see "an immediate snapback" for the economy when the government reopens despite the “hardships” of federal workers.

Hassett on Wednesday also brushed off concerns that a prolonged shutdown could lead to a credit downgrade for the U.S.

“I don’t think a downgrade is in play,” Hassett said. “I don’t think that there’s any risk at all, given how strong the economy is, that we will be downgraded.”

Credit rating firm Fitch has said it could lower the country's credit rating if the shutdown prevents lawmakers from reaching a timely deal to raise the federal debt limit.

The debt limit has been suspended until March 2, but the Treasury Department can likely use so-called "extraordinary measures" to pay down federal debts until mid-summer