While the United States government shutdown has had limited impact on Singapore’s financial markets and trade, a default could have more severe consequences, such as sending the economy here into recession, economists warned.

CIMB economist Song Seng Wun said: “If the worst case happens and the US defaults, that would mean that its economic recovery, which is just starting to gather pace, could be derailed and possibly sending it into a recession. The US is the leading economy: If they sneeze, we catch the cold.”

“If more jobs are cut than created in the US and consumer spending is affected, especially during the peak Christmas season, orders would be cancelled, factories would be less busy. Singapore could be pulled into a technical recession in the fourth quarter,” Mr Song said. He added that Singapore is likely to register a contraction in the third quarter.

The shutdown since Tuesday is already costing the US economy US$300 million (S$374 million) a day, according to research firm IHS, and Goldman Sachs projects that a three-week stalemate could cut as much as 0.9 per cent off US gross domestic product this quarter.

But OCBC’s Head of Treasury Research and Strategy Selena Ling said the impact of a US default would not be as severe as Greece’s. “I think the US is not quite in the same camp as Greece. They have the money; it’s a matter of the politicians agreeing on how to spend it.”

And a default may not be all bad news, at least in the immediate aftermath. A weaker US economy would mean that the Federal Reserve would likely continue with its stimulus measures, keeping interest rates low in the short term and helping to hold down mortgage rates in Singapore.

“It’s quite ironic from that angle, that it may be more beneficial for mortgage holders. The more severe the fiscal story is, the more accommodative the Fed is likely to be. Just like what happened with Lehman, the Fed pumped a lot of liquidity into the system,” Ms Ling said.

But Suntec Real Estate analyst Colin Tan said that a default would add uncertainty to global markets, which will hit property market sentiment negatively. Despite accommodative monetary policy, rates will rise over the longer term, as creditors lose faith in the US’ ability to repay debt.

But the odds are that squabbling members of the US Congress will find a way through their differences, economists said.

UOB economist Francis Tan said: “The US will push through eventually, even at the eleventh hour. The economy is not in great shape now, and the government wouldn’t want to risk the chance of the recovery story getting worse.” Lee Yen Nee