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JPMorgan Cuts First Quarter GDP View to 1.75 Percent

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Thursday, 24 January 2019 04:38 PM

J.P. Morgan economists reduced their outlook for U.S. economic growth in the first quarter to 1.75 percent from 2.00 percent as the partial U.S. government shutdown has stretched to a second month for the longest one ever, they said on Thursday.

“That estimate solely accounts for the reduction in government sector output and does not incorporate any potential spillover effects into private economic activity. Fortunately, so far those spillovers look contained,” the banks’ economists wrote in a research note.

The economists say each week of the shutdown results in a reduction in growth of 0.1 to 0.2 percentage points.

In general, economists have said that the economy is probably growing at the slowest pace this quarter, since President Donald Trump entered the White House in the first quarter of 2017. The government shutdown is exacerbating the already weaker growth pace, which is also impacted by an end of stimulus and trade wars, CNBC reported.

The J.P. Morgan economists also raised second quarter growth to 2.25 percent from 2 percent, to account for a bounce back in that quarter once the government reopens.

Growth estimates for the fourth quarter are around a 2.8 percent rate. The economy grew at a 3.4 percent pace in the July-September quarter.

The move came just a day after Barclays economists said they reduced their outlook on U.S. economic growth in the first quarter to an annualized rate of 2.5 percent from an earlier projection of 3.0 percent 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 34th day on Thursday. 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."

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

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

Barclays economists trimmed their forecasts for U.S. gross domestic product in 2019 to a 2.8 percent increase on a calendar-year basis, and a 2.4 percent 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. 

© 2019 Thomson/Reuters. All rights reserved.

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Some Wall Street banks, including JPMorgan and Barclays, have slashed their GDP growth forecasts to as low as a 1.75 percent annualized rate from as high as a 3.0 percent pace.
jpmorgan, barclays, gdp, growth, view
Thursday, 24 January 2019 04:38 PM
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