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Analyst Expects U.S. Shutdown To Be Resolved "In The Next Few Days"

posted 1 Oct 2013, 06:32 by Mpelembe   [ updated 1 Oct 2013, 06:33 ]

Analysts in Europe react to the partial shutdown of the U.S. government, saying they expect a resolution in the coming days.

 LONDON, ENGLAND, UNITED KINGDOM (OCTOBER 1, 2013) (REUTERS) -  As the first American government shutdown in 17 years began on Tuesday (October 1), analysts in Europe said they expected the halt to be a temporary one that would not have a major impact on the economy.

U.S. Federal government agencies have begun a partial shutdown after lawmakers failed to pass a temporary spending bill before a midnight deadline, threatening the salaries of up to a million workers.

Patrick Armstrong, Managing Director of Armstrong Investments, said the interruption is Congress' attempt to make a point.

"I expect the shutdown will probably be resolved in the next few days. It won't be resolved immediately, and I think the Congress understood this is not going to have huge implications for the economy in the short term, and behaving a bit like a petulant child, if you know that the consequences aren't major. They're just making a point, pretty much. It will be resolved. It's not that significant in the long term," he said.

The shutdown would not have a significant effect on the U.S. labour markets or the larger economy, said Armstrong.

"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," he explained.

Armstrong agreed with some investors' speculation that the shutdown might further delay the U.S. Federal Reserve's plans to start tapering its monetary stimulus.

"I don't think the Fed will begin tapering. A few months ago they were indicating they would be tapering by October, but you've got a case right now where unemployment is remaining very sticky, new jobs are being created, they're just attracting new people to the labour force, back into the labour force, so that's resulting in the unemployment rate staying significantly higher than the Fed wants it, and you've got no signs of inflation right now. So without inflationary pressure and developing strong job growth, there's no need to begin the tapering right now," he added.

Johan Karlstrom, CEO of Nordic's biggest builder Skanska, shrugged off the threat of the shutdown.

A third of Skanska's business is done in U.S., and they are currently renovating theUnited Nations building in New York.

"I'm not really concerned over the political situation over in the U.S. We've seen it before. They've talked about these threats many many times, and I'm sure that in one way they're going to solve it," said Karlstrom.

The shutdown could lead to a very negative reaction from the equity markets and a positive reaction from the bond markets, said Eric Chaney, Chief Economist at AXA.

"You know, there is a sentiment of deja vu in the markets but I'm not sure it's going to last. If the government shutdown in the US lasts for more than one week, people will start to think that, 'Okay, the deadline for the debt ceiling which is around the 17th of October is not going to be met.' In that case, the risk is a risk of a default. And I think that in that case, we might have a very negative reaction from the equity markets and a positive reaction from the bond markets, which is kind of paradoxical but we know how it works. US Treasuries always benefit when there is a rise of systemic risk," said Chaney.

"Look, we are Tuesday, rendezvous next Tuesday. If the prospect is no agreement, in that case I think equity markets are going to start to slide down," he added.

While an extended shutdown could weigh on economic growth and consumer confidence, a quick resolution may have limited impact. In addition, a resolution here could ease tensions for the congressional debate over the debt ceiling in mid-October. That issue, which could result in a default on U.S. debt if not resolved, is considered more serious for markets.