skip to navigation skip to content

 

US shutdown: the fallout for UK and emerging economies

Cambridge Judge Business School’s experts comment on shutdown

A prolonged shutdown of the US government will spell interesting times for other economies as the ripples spread outwards to lap at other shores.

This is the message from three commentators from Cambridge Judge Business School (CJBS) who are closely monitoring the effects of the shutdown on the UK and emerging economies, as well as the global picture.

UK exports could soon start to feel the effects says Senior Lecturer in International Macroeconomics Michael Kitson:

The one certain thing is that markets don’t like uncertainty. And the longer the shutdown continues the more uncertainty will increase. It will slow down growth of the US economy, one of the main export markets for the UK. If it causes the dollar to slide, then any upward pressure on sterling will further depress UK exports. Uncertainty in financial markets will also spread like a virus and the UK economy will not be immune. But worse may be yet to come; if the US does not raise its debt ceiling by the deadline of 17 October, then there is serious possibility of a major slowdown in the global economy.

Director of the Centre for India & Global Business at CJBS, Professor Jaideep Prabhu, said initial effects should be positive for emerging economies but that the long-term consequences were worrying:

In the short run, emerging market stocks will improve following the US Congress standoff. This is because the US Federal Reserve is likely to continue with quantitative easing and postpone the taper. In the long run, however, continued uncertainty in the US could prove negative for emerging economies, especially those like China that trade heavily with the US.

Uncertainty is also the main concern for Stelios Kavadios, Professor of Enterprise Studies in Innovation & Growth at CJBS:

The polarisation that was revealed through the pre-shutdown discussions will definitely increase the feeling of uncertainty about the general path of the US economy. Given that the latest crisis taught us how influential psychology can be, it’s obvious that investments will be re-thought with investors seeking alternative options beyond the main markets. Hence there will be impact on the bottom lines of businesses both in the short term and longer term, given that there is no obvious way out at the moment.

The latest crisis is yet another reinforcement of the lesson that global economies have become so interconnected that effects in the US will show up elsewhere. The effects in Europe will reveal that the recent turnarounds in some economies are still fragile as they are not as flexible or agile as the US economy. Result? Once the phenomenon cascades, non-US businesses in certain continents will feel a lasting slice of the pain.”