What’s the final economic impact of the record US government shutdown?
|After the record 43-day US government shutdown – the White House approved legislation Wednesday reopening federal government operations – much of the lost economic activity of the recent weeks is likely to be recovered as federal workers are rehired and receive their back pay in full. The funding bill furthermore bans federal layoffs through 30 January. Nevertheless, the prospect of another shutdown debate also awaits by that time.
US 4Q GDP is seen being reduced several tenths of 1% because of the shutdown though much of this should be made up for by stronger Q1 2026 output – which will boost growth for the 2026 calendar year. Scope Ratings (Scope) projects next year’s growth at 2.4%, up from the 2.1% estimated for this year, even as the threats to US economic growth increase.
Short-lived shutdowns tend to have limited economic effects, but this one might leave a more lasting dent because of its record length. The Congressional Budget Office recently estimated around USD 11bn of economic activity may be permanently lost.
The shutdown has added to the economic challenges
The shutdown has added to economic challenges such as sluggish hiring and stubbornly elevated inflation. Uncertainty around the release of October jobs and consumer price index data adds uncertainty at a time when the Federal Reserve already faces a contested interest rate decision next month.
Operational disruptions will require time to unwind. Restrictions at major airports are expected to remain in place for several further days, after flight cancellations as overworked air traffic controllers missed pay cheques. Some travellers may not rebook their flights, representing some permanently lost business.
It may also require several days for 42mn lower-income Americans enrolled in food aid to get delayed benefits. Some missed restaurant meals might not be made up for as people give up on rather than just postpone select purchases – especially large ones. The cost of Obamacare remains unresolved, raising the stakes for many households entering 2026.
The record shutdown exemplifies governance challenges
Beyond its ultimately moderate macroeconomic effects, the record shutdown exemplifies the escalating political polarisation and governance challenges facing the US. Scope cut the US sovereign ratings last month to AA- from AA, citing governance challenges.
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