Barclays lowers US Q1 GDP growth outlook to 2.5% over month-long shutdown

Barclays economists said on Wednesday they reduced their outlook on US economic growth in the first quarter to an annualised rate of 2.5 per cent from an earlier projection of 3.0 per cent as a result of the historically long partial federal government shutdown.

"This estimate primarily reflects a decline in real compensation of non-essential employees as a result of reduced hours worked and the assumption that some lost public sector output can be made up later within the same quarter following a resolution to the impasse," they wrote in a research note.

The shutdown entered its 33rd day on Wednesday. Most of the 800,000 workers who have either been furloughed or are working without pay are expected to miss their second paychecks.

"That said, longer shutdowns are likely to yield indirect effects, which we see primarily occurring through lost private services consumption," the bank's economists wrote. "Hence, the longer the shutdown remains in effect, the more likely indirect effects pile up."

US President Donald Trump and Democratic lawmakers are deeply divided over Trump's demand for $5.7 billion to help build a wall along the US-Mexico border.

The US Senate has set votes for Thursday on competing proposals in an attempt to end the shutdown.

Barclays economists trimmed their forecasts for US gross domestic product in 2019 to a 2.8 per cent increase on a calendar-year basis, and a 2.4 per cent increase when compared in the fourth quarter of 2019 versus the same quarter in 2018. Both are 0.1 percentage point lower than their prior estimates.