Goldman Sachs is warning clients that Washington is on a collision course with its first government shutdown in five years.

"The ingredients for a shutdown — a thin House majority, a dispute on spending levels and potential complications from various political issues — are present," Goldman Sachs economists wrote in a Sunday night report.

Goldman Sachs concluded a shutdown is "more likely than not" later this year, pointing to brewing fights over aid for Ukraine, funding for Justice Department investigations and border security as potential stumbling blocks.

"The spotlight that the recent sovereign downgrade shines on the fiscal situation adds to the risks," the economists wrote, referring to the Fitch Ratings downgrade.

Wall Street is not losing sleep over further dysfunction in DC, however. The government has shut down in the past — and a shutdown is far less severe than the US debt default that threatened in June — and investors were generally unfazed by them. At the end of each prior shutdown, the stock market was either flat or higher than at the start of the shutdown.

That's because while a government shutdown would cause problems for some individuals, it would not be very damaging to the US economy at large, especially compared to the debt default that Washington narrowly avoided. During a shutdown, the government can keep paying benefits like Social Security and, critically, interest and principal on US debt.

"Unlike the debt limit, where Congress reached a deal because the potential hit to the economy from an impasse would have been so severe, a shutdown would be much more manageable from a macroeconomic perspective," Goldman Sachs economists wrote in the report.

That's a relief. But it also removes pressure on politicians to reach a compromise on difficult decisions.

"The differences between a shutdown and the debt limit that make a shutdown much less damaging also make it more likely to occur," the economists wrote, adding that it's not a "foregone conclusion" and the timing is uncertain.

Already, some conservatives in the House are balking about the length of a short-term budget fix designed to buy time to avert a shutdown.

Others have indicated they are comfortable with the idea of a shutdown if it achieves their goal of slashing spending and easing the national debt.

Greg Valliere, chief US policy strategist at AGF Investments, recently pegged the chance of a government shutdown by December at 60%.

"House Speaker Kevin McCarthy gets credit for keeping his troops in line, but his good fortune may end soon," Valliere wrote in a note earlier this month.

The 2018-2019 shutdown

The last government shutdown took place in 2018-2019 and lasted 35 days, the longest shutdown in US history.

Even though that shutdown didn't deal a fatal blow to markets or the economy, there were widespread disruptions that impacted real people.

For instance, pay for countless federal workers was delayed, many people were forced to work without pay, tens of thousands of immigration hearings were canceled, economic reports were delayed, taxicab and ride-sharing drivers in Washington reported fewer rides and employers couldn't use a federal system to confirm if workers were in the country legally.

During the four shutdowns of more than one business day since the 1990s, economic growth was hurt by an average of 0.16 percentage points, according to Goldman Sachs.

A shutdown later this year would wipe out 0.2 percentage points from growth per week, according to Goldman Sachs projections.

"The quarter following the shutdown, growth would increase by the same amount as federal work rebounds," the bank said.

Most of the hit to growth would be triggered by delayed pay to some federal workers, Goldman Sachs said, with "little impact on investment" or the purchase of goods and services. Consumer confidence could also take a dip.

Assuming just "modest" economic and market impact, a government shutdown should have "little effect" on central bank policy, according to Goldman Sachs.

In other words, the Federal Reserve would be unlikely to significantly change its plans on interest rates just because the government shuts down for a few days or weeks.

However, Goldman Sachs said a "prolonged" shutdown that starts in October could add to the arguments in favor of the Fed keeping policy on hold at the November meeting.

Another potential issue for investors and the Fed: They could be flying blind.

The 2013 shutdown delayed the release of most federal economic reports, including ones on inflation, jobs and retail sales.