Unease about the risk of an unprecedented default by the world's largest economy is growing by the day.
US politicians remain in gridlock, its government has been in partial shutdown for over a week, and an agreement to lift the $16.7 trillion debt ceiling appears no closer.
Visiting international trade expert Ed Gresser expects the political standoff will go down to the wire because at the moment the Republicans don't have anywhere to go "except backwards".
But he is quietly confident a solution will be reached before the US enters the uncharted waters of going into default after October 17.
"My 99 per cent guess is this will be defused in the last couple of days, not before that," Mr Gresser, the executive director of Progressive Economy, told AAP.
The International Monetary Fund launched a warning on Tuesday that US politics is creating uncertainty in a global economy that is already facing "low gear" growth.
"A failure to promptly raise the debt ceiling, leading to a US selective default, could seriously damage the global economy," it said in its latest World Economic Outlook.
Treasurer Joe Hockey is attending the G20 finance ministers and central bank governors' meeting in Washington where the outlook for the global economy and the US government shut down are likely to be top of the agenda.
Concerns over the US situation were partly blamed for taking the edge off the buoyancy in Australian consumer confidence that followed last month's federal election.
The Westpac-Melbourne Institute consumer sentiment index fell 2.1 per cent in October after a 4.6 per cent jump in September.
Westpac chief economist Bill Evans expects the steady fall in the sharemarket through the week of the survey was taken would have had an impact.
"The shutdown of the US government and media speculation around a US government default would also have unnerved respondents," he said.
Mr Hockey said the IMF report confirmed there are downside risks to the Australian budget.
The lower growth profile for Australia projected by the IMF was broadly in line with the Pre-election Economic and Fiscal Outlook released by Treasury and Finance in August.
"The downside risks documented in the world economic outlook confirms significant risks to the Australian budget that will need to be appropriately managed by the coalition government," Mr Hockey said in statement.
Interim Labor leader Chris Bowen was surprised by Mr Hockey's response to the IMF's report given their forecasts just reflect the view of the Treasury and the Reserve Bank of Australia that has been out there for sometime.
He said the coalition had dramatically changed its position, because in opposition they said the state of the budget was all the government's fault and world economic circumstances wouldn't have this sort of impact.
"I won't be playing the game that Mr Hockey used to play when he was shadow treasurer, I will agree the world economic situation, if it deteriorates, always presents a downside risk," he told Sky News.
Share
