As the U.S. government shutdown enters its fourth week, concerns are growing about its potential to trigger a recession if it persists through the end of the year.

In this line, Mark Zandi, Chief Economist at Moody’s Analytics, has highlighted that if the shutdown continues, particularly through November and into December, the economic impact will become more pronounced.

In an X post on October 27, Zandi noted that while the immediate effects of the shutdown have been confined to Washington, DC, its reach will soon expand.

He explained that federal employees who remain unpaid will reduce their spending, while government contractors begin layoffs. Additionally, disruptions to critical government services, including the failure of essential workers to report to work, will further strain the economy.

If the shutdown drags on into the busy holiday season, Zandi stressed that it could severely affect retail sales. Financial markets are expected to react to the growing economic fallout, deepening the downturn.

Impact of job cuts 

Zandi also pointed to the potential consequences of proposed cuts to government jobs and funding for infrastructure projects, which could exacerbate the economic damage. 

While these cuts may not be as extensive as some have feared, the continued shutdown heightens the likelihood of a recession by the end of the year.

Overall, Zandi has maintained a bearish outlook on the economy. For instance, as reported by Finbold, he cautioned that the U.S. economy is at risk of a recession, with the labor market acting as the final defense.

He also noted weak consumer spending and inflated GDP growth due to temporary factors. Inflation remains above the Fed’s target, and Zandi’s model predicts a 45% chance of recession within the next year, while also noting that some states are already in a downturn.

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