October 1, 2013 / 12:13 AM / 6 years ago

Chance of U.S. government default less than 10 percent, economists say: Reuters poll

LONDON (Reuters) - There is a less than 10 percent chance that Washington’s budget feud will lead to the United States defaulting on any of its debt, according to a majority of economists polled by Reuters since Friday.

U.S. National Park Ranger Mark Ragan checks his watch while on duty in front of the Lincoln Memorial in Washington September 30, 2013. REUTERS/Kevin Lamarque

Barring an 11th-hour deal between deadlocked Republican and Democrat lawmakers to continue funding the federal government, a partial government shutdown will start Tuesday.

However, 40 out of 51 economists at major banks and research institutions said there is a less than one-in-10 chance that a government shutdown on Tuesday will escalate into a potentially ruinous default on government debt payments later this month.

U.S. Treasury Secretary Jack Lew has said the Treasury will run out of money to pay its debt by October 17 if Congress fails to raise the debt ceiling.

The remainder of the economists polled cited a greater risk, although no respondent thought the risk was greater than 50-50.

“We think the chances of a U.S. default are zero and a government shutdown would be not long-lasting — amounting to a quasi non-event in economic activity,” said Peter Cardillo, chief market economist at Rockwell Global Capital.

Other respondents said a shutdown would have some impact.

“A short government shutdown will have more political than economic ramifications, though assume a quarter (percentage) point removal of growth for every week of shutdown,” said Donald Ratajczak, consulting economist and professor emeritus of Georgia State University.

With just hours to go before a midnight deadline to avert a federal government shutdown, the Democratic-controlled U.S. Senate on Monday was poised to reject a funding measure that would delay reforms promised in the 2010 healthcare overhaul.

Asked how the standoff has already damaged the economy, if at all, 30 out of 52 respondents said it had not been a major impediment to the slow economic recovery. The remaining 22 said it had.

A Reuters poll in January suggested the political spat resulted in businesses cutting back expansion and hiring plans.

“(It) has not been a ‘major’ contributor, but was part of the backdrop of uncertainty that has been a notable headwind for the economy,” said Patrick Franke, economist at Helaba.

Economists were split on whether the risk of a government default and political stalemate were the reasons behind the U.S. Federal Reserve’s decision not to cut the pace of its monthly $85 billion stimulus in bond buys at its September meeting.

Twenty-seven said those factors are what probably persuaded the Fed not to taper its stimulus, and 26 disagreed.

Since the financial crisis began - and even before - forecasters have tended to play down the likelihood of worst-case scenarios being played out.

“Since the markets and economists have not yet factored in an adverse political outcome here, the chance for disappointment remains great,” said Scott Anderson, chief economist at Bank of the West.

Writing by Andy Bruce; polling by Swati Chaturvedi and Rahul Karunakar; Editing by Ross Finley and Leslie Adler

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