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El-Erian: U.S. shutdown dysfunction leads to worry 'about the slowdown in the global economy'

Aarthi Swaminathan
Finance Writer

Resentment among U.S. politicians amid the shutdown could hurt global economic growth if dysfunction spills over and hurts logical fiscal stimulus like proposed infrastructure projects, economist Mohamed El-Erian told Yahoo Finance.

“If it turns out that this shutdown is an indication of a lot more polarization,” the chief economic advisor for Allianz warned Yahoo Finance’s On The Move, “then you would worry more about the slowdown in the global economy than the U.S.”

President Donald Trump holds a photo as he leads a roundtable discussion on border security with local leaders, Friday Jan. 11, 2019, in the Cabinet Room of the White House in Washington. (Photo credit: AP Photo/Jacquelyn Martin)

Democrats and Republicans are currently in a political deadlock over President Donald Trump’s proposed $5.7 billion southern border wall. The unprecedented episode involves nearly 800,000 aggrieved federal workers in a furor over either being forced to take leave or work without pay.

“So at the micro level, there are real tragedies involved,” El-Erian said. “There are people whose savings do not allow them to navigate easily an interruption in income. And I think that’s a serious issue. 

“At the macro level, it depends on the length of the shutdown. You know, shutdowns in the past have had the features of being both temporary and reversible, which meant that you do get a slowdown, but it’s quickly compensated for, and when you look over the longer term, you can hardly see the blip. So a lot depends on how long this shutdown continues.”

The government shutdown is the longest ever. (Graphic: David Foster/Yahoo Finance)

‘So if we can get agreement on something like an infrastructure program…”

Neither political side (particularly President Trump himself) seems willing to back down.

El-Erian noted that “if we are to navigate well the external pressures, if we are to navigate well what we talked about — the slowdown in China, the slowdown in Europe — we need more pro-growth policies.” 

He cited proposed infrastructure policies — which both sides agree on — as something that would show that the dysfunction in Washington wasn’t creating larger economic problems.

“There is one area where both parties agree on paper, which is an infrastructure plan that crowds in the private sector, that increases productivity, and increases growth,” El-Erian said. “So if we can get agreement on something like an infrastructure program, yes, we can navigate well what’s ahead.”

A persistent and prolonged shutdown will likely have a detrimental impact on U.S. economic growth, economists argue. BAML recently noted that it will ultimately come down to “how much pain the Trump administration is willing to tolerate.”

Aarthi is a writer for Yahoo Finance. Follow her on Twitter @aarthiswami.

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