LIVE MARKETS-If not sweet, DOGE spending cut impact likely to be short

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IF NOT SWEET, DOGE SPENDING CUT IMPACT LIKELY TO BE SHORT

Department of Government Efficiency (DOGE) spending cuts are unlikely to have a negative impact on U.S. economic growth in the medium term, according to Nomura analysts.

DOGE, previously spearheaded by former advisor Elon Musk, was created to downsize and reshape the U.S. government through slashing the federal workforce and dismantling agencies in a bid to cut costs.

"We believe federal spending cuts are likely to be temporary unless Congress codifies them either in annual appropriation bills or approved rescissions," the Asian brokerage said.

Rescission requests need to be approved by Congress to take back unspent funds for certain government agencies.

The size of President Trump's proposed rescission package is relatively small, at just $9.4 billion, or 0.03% of GDP, mostly related to National Public Radio (NPR), Public Broadcasting Service (PBS), and certain foreign aid programs under the State Department, and USAID.

Some Republicans have already expressed reluctance to support some of the proposals.

Nomura expects federal employment reductions to be mostly driven by attrition and not DOGE measures with many of those laid off having been reinstated by court rulings.

Trump has asked the Supreme Court to intervene and allow lay-offs under the Reductions in Force (RIF) process.

"Considering that RIFs cannot be used to dismantle government agencies or to reduce statutory responsibilities of individual agencies, massive layoffs exceeding the purpose of enhancing the efficiency are unlikely in our view," Nomura analysts said in the note.

The analysts also add that there has been no spillover of spending cuts into the private sector according to their analysis of industries most sensitive to government spending.

More government reliance on contractors is expected in case RIFs are allowed to go through without a largely unchanged annual budget from last year's.

(Twesha Dikshit)

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