U.S. Government Shutdown Clouds Global Economic Outlook, Increasing Risk of Policy Mistakes

Summary:

The ongoing U.S. government shutdown is causing a data blackout, leaving policymakers around the world blind to critical economic indicators from the world's largest economy....

The U.S. government shutdown, which has halted the flow of official economic data, is beginning to cast a long shadow over global economic policymaking. The U.S. economy, accounting for about a quarter of global output, plays a crucial role in shaping the outlook for other nations. With key data unavailable, such as jobs reports and inflation statistics, central banks and policymakers in countries like Japan, the UK, and beyond are finding it increasingly difficult to make informed decisions.

Impact on Global Policymaking

The loss of reliable U.S. economic data is particularly concerning for countries that rely heavily on U.S. economic trends to shape their own monetary and fiscal policies. Bank of Japan Governor Kazuo Ueda expressed frustration with the situation, noting that it complicates the BOJ’s decision-making process on interest rate hikes. Similarly, Bank of England officials acknowledged that while trade policy is a more direct concern for the UK, the lack of U.S. data adds to uncertainty about economic developments globally.

The IMF’s latest World Economic Outlook (WEO) highlighted the broader consequences of this data void, noting that it increases the likelihood of policy mistakes. The report stressed that political interference in U.S. data collection, including President Trump’s attempts to influence the Federal Reserve and his firing of the Bureau of Labor Statistics head, has eroded trust in U.S. data reliability, further complicating global policymaking.

Rising Risk of Economic Errors

As the shutdown drags on, there is growing concern that policymakers will be forced to make decisions based on incomplete or unreliable information. This has heightened the risk of errors, which could lead to miscalculations in economic strategy. Robert Kahn from Eurasia Group noted that while private data services and anecdotal evidence are helping fill the gaps, the risk of error increases as the uncertainties pile up.

For countries heavily reliant on U.S. data for their monetary policy decisions, such as those in the eurozone and Asia, this lack of information is a significant issue. The uncertainty surrounding the U.S. economy could affect everything from trade negotiations to interest rate decisions, with markets reacting more sharply to any developments that could indicate a shift in the U.S. economic landscape.

The IMF’s Updated Global Growth Outlook

Despite the disruptions caused by the U.S. shutdown, the IMF has slightly upgraded its global growth forecast for 2025 to 3.2%, up from its earlier projection of 2.8%. This recovery was aided by resilient global trade and economic activity, particularly through September. However, the ongoing data gap means that future forecasts could become increasingly uncertain if the shutdown persists, with global growth projections remaining subject to revision.

The U.S. government shutdown is not just a domestic issue but a global one, as it prevents the release of crucial economic data that informs policy decisions worldwide. With the U.S. accounting for a significant portion of global economic activity, the data void creates uncertainty and heightens the risk of policy mistakes. As policymakers scramble to fill the gaps with limited information, the global economic outlook remains clouded, with risks mounting the longer the shutdown continues.

Source: Reuters

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