Crédito y Caución (Atradius) forecasts a solid US economic rebound in 2021. The credit insurer expects the economic recovery to gain momentum from the second quarter of 2021 and GDP to grow by 4.2% this year, with private consumption (5.3%), investment (3.4%) and exports (5.1%) rising. However, these forecasts are subject to significant downside risks. The recovery hinges on avoiding another large wave of infections, getting the vaccination process underway in the first half of 2021 and implementing massive stimulus measures. Tight containment would severely affect the fragile economic recovery, hurting both businesses and consumers. In the event of a prolonged slowdown, unemployment could rise sharply and household finances deteriorate sharply.
After a strong 41% rebound in Q3 of 2020, household consumption (which usually accounts for about 70% of GDP) grew only 2.5% in Q4 compared to the previous quarter. The US unemployment rate was at 6.7% in December 2020, which was well above pre-pandemic levels of about 3.5%. The labour market situation is expected to remain strained until the pandemic is brought under control. For the first time since 2009, household debt has increased again in Q4 of 2020. However, household finances are in much better shape than in the lead-up to the 2008 credit crisis (US households have been deleveraging, decreasing household debt as a percentage of GDP to 75% in 2019 from nearly 100%)..
In order to counter the economic repercussions of the pandemic, the US government has launched massive fiscal stimulus programmes. In spring 2020, the Trump administration launched the Cares Act (amounting to around USD 2.3 trillion or 11% of GDP) to counter the downturn, addressing every segment of the economy. Measures included direct household support via the handout of cheques, an increase in unemployment benefits and wage subsidies to businesses, and emergency grants and loans for SMEs. This was followed by another relief package (worth USD 877 billion or 4.5% of GDP) in December. The Biden administration plans to launch another USD 1.9 trillion stimulus, providing further assistance to households of an additional USD 1,400 per individual, for a total value of USD 1 trillion. The rest of the package contains spending on vaccination, school reopening and aid for local and state governments, as well as for businesses. The Federal Reserve has cut the policy rate by 1.5 percentage points since February 2020, down to 0.25%. In March the Fed began purchasing corporate bonds to ensure companies could secure emergency funding in the face of the economic downturn. t is expected that there will be no tightening of the policy rate until 2023.
Insolvencies declined by 4.9% in 2020, despite the economic downturn and the functioning of bankruptcy courts. This decline was mainly due to the comprehensive fiscal and monetary measures and the strong rebound seen in Q3 of 2020. However, in certain industries, the credit risk situation of many businesses has deteriorated. In the automotive and steel/metals sectors, payment delays have increased due to rising pressure on businesses’ cash flows. Payment delays and insolvencies increased in the brick-and-mortar retail segment, where permanent business closures amounted to more than 6,000 in 2020. In the service industry, subsectors like hotel and catering, restaurants, bars, entertainment and cultural events, travel agencies and tour operators have been heavily affected by sharply decreased footfall and closures resulting from the coronavirus pandemic.
IIn H1 of 2021, the risk of payment defaults will remain high for stationary retailers and the above mentioned hospitality and entertainment-related service segments. The same accounts for airlines and cruise lines, where businesses continue to burn cash at a significant pace, given the sharp decrease in demand. A rebound of all those industries strongly depends on the vaccine rollout this year. The risk of payment defaults is also elevated in the energy (oil/gas) sector and related OCTG businesses, which continue to suffer from a severe decline in investments and revenues. There has been strong pressure on profit margins of businesses, and low oil and gas prices continue to present significant challenges.