US likely to see economic rebound in 2021 – Atradius

However, significant risks remain, says trade credit insurer

US likely to see economic rebound in 2021 – Atradius

Insurance News

By Ryan Smith

The United States will likely see a robust economic rebound this year, driven by a decrease in political uncertainty and an infusion of fiscal stimulus, according to a report from trade credit insurer Atradius.

Atradius’s latest US Country Report anticipates a more positive outlook for the US following the change in presidential administrations, but cautions that downside risks remain. The coronavirus has spread rapidly across the country, causing it to have the highest registered rate of infections in the world. The report highlights that the COVID-19 pandemic hit at a time when the US was already experiencing economic challenges, with the country’s trade war with China weakening Chinese imports and disrupting 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,” Atradius said.

However, the impact has been softened by the extent of fiscal stimulus packages, the report said. Those packages have resulted in a decrease in annual insolvencies and a less severe economic contraction than initially predicted.

In addition to the Trump administration’s $2.3 trillion package launched in spring 2020, the Biden administration plans to launch another $1.4 trillion package. As a result of the stimulus, the US GDP contracted 3.5% in 2020 – well below the 6.1% originally predicted in September. With economic rebound expected to increase in the second quarter, Atradius forecasts GDP to grow 4.2% this year. However, the US economy is still on a weak footing, and the rebound depends on a successful vaccine rollout and avoiding another major wave of infections.

There were relatively few insolvencies in 2020, and business bankruptcy filings decreased 4.9% year over year, according to the report. However, Atradius warned that insolvencies historically lag economic downturns, so an increase is likely this year. Companies with constrained liquidity are especially vulnerable, Atradius said.

The credit risk of many businesses has deteriorated, according to the report. Atradius found an increase in payment delays in the automotive and steel/metals sectors due to rising pressure on cash flow, while payment delays and insolvencies also rose in the brick-and-mortar retail segment. Service-industry subsectors like hotels and catering, restaurants, bars, entertainment, travel agencies and tour operators have been severely impacted. Atradius forecasted the risk of payment default in those sectors to remain elevated in the first half.

“The economic fallout from coronavirus has hit every market around the world with no exception,” said Richard Reynolds, head of strategic accounts at Atradius UK. "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 market 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.”  

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