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SG Impact of US shutdown limited, say analysts

Property Here - Wednesday, October 02, 2013

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Analysts and policy makers remain confident that the global economy will withstand the first US government shutdown in 17 years, said media reports. 

According to Tomo Kinoshita, chief economist at Nomura Holdings in Tokyo, a one week shutdown of some government services will see an impact of less than 0.1 percent on the country's GDP. 

Moreover, stopping non-essential government services will not significantly affect imports from Asia, reckons Richard Jerram, chief economist at Bank of Singapore. 

“Investors will likely become more risk-averse due to the shutdown,” noted South Korea’s Finance Ministry Director General Choi Hee Nam, adding that any impact on the world economy would likely be short-lived. 

The US government entered a shutdown on 1 October, after Congress failed to break a partisan deadlock. Asian stocks pared gains since the absence of immediate plans for further negotiations worried some lawmakers that the shutdown could lead to a battle on raising the country's debt limit.

“If it does last two or three days, then the impact should be very limited, but there is obviously a risk that it doesn’t and then we run into the debt ceiling limit as well,” said Robert Prior-Wandesforde, Singapore-based economist at Credit Suisse Group AG.

“Given how high the stakes are, as we’ve seen a couple of times in the recent past, it will be resolved, or at least the can will be kicked down the road once more.”

He noted that a shutdown of one month could lead to a one to two percentage point decline in fourth quarter US GDP growth. 

Consequently, this will affect demand from Asia, particularly Singapore, Taiwan, Malaysia and South Korea as these are countries that are most export-intensive and have the highest share of direct exports to the US, he added.

 

Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories email romesh@propertyguru.com.sg