Goldman Sachs (NYSE:GS) economists have revised their projections for U.S. GDP growth and the likelihood of a government shutdown, following changes in House leadership and geopolitical risks. The fourth quarter of 2023 is now expected to see a GDP growth of +1.6%, and the first quarter of 2024 is anticipated to record a +1.7% increase. These adjustments discard previous assumptions of a government shutdown.
Newly elected House Speaker, Mike Johnson (R-La), has committed to avoiding a government shutdown during his recent appearance on FOX News' "Sunday Morning Futures." Congress faces a deadline of November 17 to pass legislation preventing a partial shutdown. Johnson's proposed solution is a stopgap continuing resolution (CR) that extends funding until either January 15 or April 15 of next year, depending on the support from House Republicans.
The GOP's slim majority, which can only withstand four defections while passing legislation, may be put to the test with upcoming aid packages for Israel and Ukraine. The ousting of former House Speaker Kevin McCarthy (R-Calif) by eight GOP members led to a 22-day scramble for leadership, culminating in Johnson's election.
Goldman Sachs analysts caution that an extended reliance on short-term extensions decreases the likelihood of Congress securing a deal on full-year spending bills. This could potentially impact funding through to the end of the fiscal year on September 30, 2024.
Earlier, Goldman Sachs had predicted a 2-3 week government shutdown this quarter due to geopolitical tensions including the Israeli conflict and U.S. air strikes in Syria. However, this prediction has now been nullified due to changes in House leadership. Despite this, Goldman Sachs' economists, including Jan Hatzius, have emphasized potential triggers for future governmental disruptions such as unresolved policy disagreements and dependency on temporary extensions of spending bills. This could potentially lead to a shutdown in early 2024, resulting in instability in future government operations.
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