US GDP forecast to grow 4.2%

The United States can anticipate a robust economic rebound in 2021, with political uncertainty decreasing and an injection of fiscal stimulus, according to trade credit insurer Atradius.

The new US Country Report by Atradius anticipates a more positive outlook for the US following the change of administration, but cautions that downside risks still remain.

The report highlights the rapid spread of coronavirus across the US, causing it to have the highest registered rate of infections across the world. It states that the pandemic hit at a time when the US was already experiencing economic challenges, with the Sino-US trade war weakening Chinese imports and causing disruptions in global supply chains.

The compounding impact has resulted in a fallout which has hurt the US economy and consumers alike, resulting in job losses, rising unemployment and elevated credit risk across key industries.

However, the extent of US fiscal stimulus packages has softened the blow; leading to a decrease in annual insolvencies and a less severe economic contraction than initially predicted.

In addition to the $2.3 trillion launched by the Trump administration in Spring 2020, the Biden administration plans to launch another $1.4 trillion stimulus to support households, vaccinations, school reopenings as well as governments and businesses.

As a result of the support, US GDP contracted 3.5% in 2020 – several points less than the 6.1% contraction originally forecast in September.

With economic rebound expected to gain momentum from the second quarter of 2021, Atradius forecasts GDP to grow 4.2% this year. That said, the US economy remains on a weak footing and substantial downside risks remain with rebound reliant on avoiding another major wave of infections and a successful vaccination rollout.

Positively, there were relatively few insolvencies in 2020 with a decrease in business bankruptcy filings of 4.9% year on year. However, insolvencies historically lag economic downturns and therefore an increase is likely in 2021.

Companies with constrained liquidity are particularly vulnerable. In the interim, the credit risk of many businesses has deteriorated.

Atradius reports an increase in payment delays in the automotive and steel/metals sectors due to rising pressure on cash flow while payment delays and insolvencies increased in the brick-and-mortar retail segment.

In the service industry, subsectors such as hotel and catering, restaurants, bars, entertainment and cultural events, travel agencies and tour operators have been heavily affected by sharply decreased footfall and closures.

Richard Reynolds, head of Strategic Accounts at Atradius UK, commented: “The economic fallout from coronavirus has hit every market around the world with no exception. The good news is that pockets of positivity remain and new trade opportunities are on the horizon.

”However, exporters must protect themselves like never before. The adage ‘look before you leap’ has never been more apt. Businesses must make sure they are equipped with accurate, real-time information and insights both on their individual customers and on the wider markets they are trading in.

”In this uncertain and ever changing economic climate, innovation, a flexible approach and the ability to adapt are key tools while the need for a comprehensive risk management strategy is critical.”