Goldman Sachs Adjusts U.S. GDP Growth and Government Shutdown Forecasts

Goldman Sachs economists have updated their forecasts for U.S. GDP growth and the possibility of a government shutdown, in light of changes in House leadership and increasing geopolitical risks. For the fourth quarter of 2023, GDP growth is now projected at +1.6%, while the first quarter of 2024 is expected to see a +1.7% increase. These revisions reflect a departure from prior assumptions regarding a government shutdown.

Newly elected House Speaker, Mike Johnson (R-La), has assured that efforts will be made to avoid a government shutdown, as stated during his recent appearance on a news program. Congress has a critical deadline of November 17 to enact legislation that would prevent a partial shutdown. Johnson has proposed a temporary continuing resolution (CR) that would extend government funding until either January 15 or April 15 of the following year, contingent on support from House Republicans.

The slim GOP majority in the House, which allows for only a few dissenting votes when passing legislation, may face challenges with forthcoming aid packages for countries like Israel and Ukraine. The leadership turmoil, which began with the removal of former House Speaker Kevin McCarthy (R-Calif) by a faction of eight GOP members, led to a lengthy search for new leadership before Johnson’s election.

Goldman Sachs analysts warn that relying heavily on short-term funding extensions diminishes the chances of Congress finalizing comprehensive spending bills. This could have repercussions for funding through the end of the fiscal year on September 30, 2024.

Previously, Goldman Sachs had forecast a potential 2-3 week government shutdown this quarter due to geopolitical tensions, such as the conflict in Israel and U.S. military actions in Syria. However, this expectation has been reassessed following the shift in House leadership. Nonetheless, leading economists at Goldman Sachs, including Jan Hatzius, have highlighted that unresolved policy disagreements and the continued use of temporary spending extensions could precipitate a shutdown in early 2024, posing risks to government stability.

This article was generated with the support of AI and reviewed by an editor.