As a percentage of the overall economy, the impact of the shutdown is small -- just 0.2 percent of GDP for the first quarter of 2019. But, CBO notes, “Underlying those effects on the overall economy are much more significant effects on individuals businesses and workers.”
The slowdown in economic activity is the result of billions less in government spending and less spending by hundreds of thousands of government workers during the shutdown, said CBO Director Keith Hall.
“We think there will be a fairly quick recovery from that,” Hall said. “But there is a permanent loss. You lose the government output for five weeks, and that’s never made up.”
The CBO’s estimated cost of the shutdown does not include some other potential impacts, including the lack of federal economic data. House Budget Committee Chair Rep. John Yarmuth (D-Ky.) and Rep. Tom O’Halleran (D-Ariz.) last week requested the CBO issue a report on the impact of the shutdown, with Yarmuth commenting after its release that the shutdown had a “debilitating effect on our entire economy.”
The CBO also projected Monday that the American economy would grow by 2.3 percent in 2019, as the temporary boost from the Republican tax law and other new federal spending begins to fade.
The U.S. economy expanded by 3.1 percent in 2018, in part because of the tax cut and increase in federal spending passed by Congress that year. But the impact of the tax cut will be more muted in 2019, according to the CBO, which also projected gross domestic product will only grow by an average of 1.7 percent through 2023.
The report comes amid fears of a global economic slowdown, as well as ongoing trade tensions between the United States and China and the lingering impact of the longest government shutdown in American history.
The CBO projects the economy only growing by 1.7 percent in 2020, the year of a presidential election.
“Growth in business fixed investment, which contributed almost one-third of the GDP growth in 2018, is expected to slow markedly this year as the effects of the 2017 tax act on investment moderate,” CBO’s report states.
Last year, the economy grew at an annualized rate of 4.1 percent from April to June in the fastest expansion since 2014. Trump celebrated the news as a victory for his administration’s economic policies, though economists warned the jump could prove a temporary blip rather than a new normal.
New trade barriers between the United States and its trading partners are also expected to have a modest downward impact on the overall economy. These new tariffs will reduce GDP by 0.1 percent by 2022.