Spending cuts expected in an eventual deal to raise the US debt limit could cost the country as many as 570,000 jobs, exacerbating the recession seen coming later this year, according to Bloomberg Economics.
“A protracted standoff would be bad news for the US economy. However, a deal also would come at a cost,” Anna Wong, the chief US economist for Bloomberg Economics, said in a report out this week.
“Our baseline forecast is already for a recession” in the second half of 2023, and “spending cuts would make it worse, with further headwinds headed into the 2024 presidential election,” she wrote.
Negotiations in Washington have hit a fresh impasse, with the two sides far apart on key issues like spending cuts, as the so-called “X-date” when the government is expected to run out of cash and potentially default on its debt draws nearer. Negotiators were tentatively planning to return to the table Wednesday.
The Bloomberg Economics analysis, using the SHOK model on the Bloomberg Terminal, found that Republicans’ Limit, Save, Grow Act of 2023 proposal could reduce gross domestic product by 0.8% and boost the unemployment rate by 0.4 percentage point — translating to 570,000 job losses — through the end of next year.
Even a deal with fewer spending cuts, favored by Democrats, and a “middle-of-the-road” deal, could reduce GDP by 0.5% and boost unemployment by 0.2% percentage points through the end of 2024, Wong said.
By Matthew Boesler / Bloomberg