US economy set to grow, but shutdown casts shadow

America's economy will continue to grow this year, expanding at 2.6 per cent, US Chamber of Commerce president and chief executive Thomas Donohue predicted on Thursday, pushing back against warnings of an impending recession.

But he cautioned that the economy needs skilled foreign workers, and said that political parties in polarised Washington needed to recreate the middle ground and fix America's broken immigration system, as well as pay more attention to upgrading infrastructure - a promise thus far lost in political acrimony.

Separately, however, Federal Reserve chairman Jerome Powell told the Economic Club of Washington that if the current government shutdown - poised to become the longest in history - continues, the economy could take a dent.

Most previous shutdowns were short and did not affect the economy in the aggregate, he said, while cautioning: "If we have an extended shutdown, I think that would show up in the data pretty clearly."

Mr Donohue, while optimistic, also warned: "Dysfunction saps confidence, threatens growth and consequently poses a threat to opportunity in this country.

"Many of Washington's troubles - including dysfunction, division and incivility - could be helped by rebuilding the political centre and restoring responsible governing."

But he welcomed the new US-Mexico-Canada Agreement, which has replaced the North American Free Trade Agreement, and urged Congress to approve it.

He also urged the White House to drop steel and aluminium tariffs on Mexico and Canada, as encouragement to other trading partners also hit with the tariffs.

Referring to trade negotiations with China, he welcomed attention to what the United States saw as China's theft of intellectual property, forced technology transfer and other unfair practices.


But he added that tariffs were essentially taxes, and American businesses need more trade - not a trade war.

"The modern trading system is an American triumph," he told a packed chamber in a State of American Business address.

His speech came against a backdrop of a robust economy tempered by stock market volatility as uncertainty persists over the partial federal government shutdown and crucial trade negotiations with China.

"Selling made-in-America goods and services to the 95 per cent of the world's consumers who live outside the US is absolutely fundamental to our growth and prosperity as a nation," Mr Donohue said.

"Forty-nine of every 50 US companies that sell goods overseas are small businesses - many of them could not survive without trade, especially in America's heartland.

"Optimism is consistently high. Business owners tell us they have been encouraged by stronger economic growth.

"The chamber projects continued growth of around 2.6 per cent for 2019. We expect unemployment to remain low, wages to keep expanding and inflation in range of the Fed's target of 2 per cent," he added.

"Rumblings of a recession don't match up with reality."

He also made a strong pitch for diversity and inclusiveness.

"We must have a steady supply of talented and hardworking people to do the work of a modern economy so our nation can compete and lead," he said.

A version of this article appeared in the print edition of The Straits Times on January 12, 2019, with the headline 'US economy set to grow, but shutdown casts shadow'. Print Edition | Subscribe