WASHINGTON Feb 23 A $61.5 billion spending-cut
bill passed by the U.S. House of Representatives on Saturday
would slow economic growth significantly this year, according
to an analysis by the global investment firm Goldman Sachs
"Under the House passed spending bill, the drag on GDP
growth from federal fiscal policy would increase by 1.5pp
(percentage points) to 2pp in Q2 and Q3 compared with current
law," according to Alec Phillips, who signed the analysis that
is dated Tuesday.
Democrats, who want to maintain spending this year at
around current levels, seized on the Goldman Sachs analysis.
"This nonpartisan study proves that the House Republicans'
proposal is a recipe for a double-dip recession," said Senator
Charles Schumer, a member of the Senate's Democratic
Republicans in Congress, especially conservative Tea Party
activists who were elected in November, have touted their
fiscal 2011 spending-cut bill and upcoming attempts to impose
more U.S. budget cuts as the key to improving the economy and
Democrats have countered that while there is a need to cut
government spending and budget deficits over the long-term,
policy-makers must tread softly in the short-term so the
fragile economic recovery underway is not cut short.
Commenting on the Goldman Sachs estimate of impact on Gross
Domestic Product, Michael Steel, a spokesman for House Speaker
John Boehner said: "This is the same outdated Washington
mind-set that led to claims that the trillion-dollar 'stimulus'
would keep unemployment below 8 percent." He added, "We don't
need more ineffective 'stimulus' spending; we need to get our
economy growing again and help the private sector create
EARLIER BUDGET FORECASTS
The U.S. jobless rate is at 9 percent.
The Goldman Sachs analysis said that the more modest
spending cuts it had been assuming in earlier budget forecasts
would result in a "drag on growth" in the second quarter of as
much as 1 percentage point. That drag would quickly fade over
the following two quarters "as spending stabilizes at a lower
level, with little effect versus current policy on the rate of
real GDP growth by year end."
With Democrats and Republicans facing a March 4 deadline to
reach some sort of deal on funding the federal government,
there are worries that a failure would lead to a temporary
shutdown of many government offices and programs if there is no
The Goldman Sachs analysis points out that a government
shutdown "poses less risk" than proposed spending cuts "as long
as it is brief."
But a shutdown lasting more than a week could result in
around $8 billion per week in missed federal spending, with a
resultant drag on growth, the analysis said. "Pulling this
spending out of Q2 would reduce the contribution to quarterly
GDP growth from federal activity by a little over 0.8pp at an
annualized rate for each week the shutdown lasted," it added.
In its fiscal 2012 budget proposal released last week, the
the Obama administration forecasted 2011 economic growth of 2.7
percent year over year, while Blue Chip economists estimate 3.1
(Reporting by Richard Cowan; editing by Philip Barbara)