US GDP may be impacted by 0.2% due to shutdown: Expert

Jeff Chowdhry, head - EM Equities at F&C Investments believes the US government shutdown will be a bigger concern on a longer-term basis because with the passage of every week, it will cost the US economy about 0.2 percent of GDP.

Adding to the discussion, Patrick Legland of Societe Generale says the shutdown is unlikely to delay Federal Reserve's decision on tapering as the move was already taken into account and the data from the US economy are relatively strong. Below is the verbatim transcript of their discussion on CNBC-TV18. Q: What do you make of the US government shutdown and the fact that most of the equity markets have almost ignored it? Chowdhry: The market is very mush muted. I think a lot of the people are saying, it is a big yawn. This is clearly a political football, which is going on in Washington. If you look at the whole history of the previous shutdown in 1996, the markets went up rather than going down after the shutdown and so, it appears to be a big yawn at this stage. Q: What would be your reaction? Legland: I fully agree this is a short-term political story in the US and believe that many global investors will use any weakness in the market to as a fantastic buying opportunity to reinforce on equity and risk assets. Q: Maybe because of the US shutdown, there could be uncertainty over the non-farm payrolls data which is expected to be released this Friday, is that a concern for the markets because then that would throw the markets as well as possibly Fed decisions come end October? Chowdhry: There is a possibility because of the shutdown the actual data will be released. The data itself is being compiled and is ready to be released. The more pressing concern on a longer-term basis is that every week that passes in terms of the current shutdown, it is estimated that it will cost the US economy about 0.2 percent of GDP but that is sort of more medium-term concern that the longer this goes down, it does have some economic impact. Q: Considering that maybe there could be a GDP impact because of this US shutdown, would it change the Fed tapering timeline at all? Would it be possibly just pushed to December? Legland: I don’t think so because it was already taken into account when they addressed the statement about delaying the tapering.
Secondly, you also need to take into account that old data from the US economy are relatively strong and I don’t think they will have to change their mind, have to change their decision about Fed tapering.