A default would hit not only the United States’ top trading partners and debt holders but also smaller economies that could have a harder time borrowing or exporting their goods. In its latest global economic report, the International Monetary Fund trimmed its global economic forecasts for 2013 and 2014 and noted slowing growth in emerging markets.
The shutdown has put IMF officials on alert, tracking the possible fallout worldwide. An IMF study this week showed the ripples that even an offhand comment from a U.S. official can generate. The IMF estimated that nearly half a trillion dollars was pulled out of global bond and stock markets when Federal Reserve Chairman Ben S. Bernanke hinted in May at an upcoming end to the Fed’s easy-money policies.
A major U.S.-caused disruption is generally regarded as a “tail risk” — a low-probability event.
But for the rest of the world, the stakes are high. The United States is now retaking its place as the expected prop for global growth, and if it takes a turn for the worse, the rest of the world may follow.
“It could well be that what is now a recovery could turn into a recession or worse,” said Olivier Blanchard, chief economist at the IMF.
Whether or not the United States pulls out of this crisis in time, the political dysfunction has already damaged Washington’s reputation, raising questions about its reliability in other foreign policy roles.
The shutdown prompted President Obama to cancel his trip to the Asia-Pacific Economic Cooperation forum in Bali, Indonesia — a key meeting in a region that the United States had pledged to make a greater priority. In Obama’s absence, Chinese President Xi Jinping tried to draw closer to key neighbors while laying groundwork for new economic deals with Australia, Indonesia and Malaysia.
Speaking at the forum, Putin said he didn’t blame Obama for staying home to deal with his government’s “forced leave.”
“I would not have come either,” he said.
Anthony Faiola and Karla Adam in London, Yuki Oda in Tokyo and Liu Liu in Beijing contributed to this report.