Economic analysis
United States of America

United States of America

Population 328.5 million
GDP per capita 65,254 US$
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Synthesis

major macro economic indicators

  2018 2019 2020 (f) 2021 (f)
GDP growth (%) 3.0 2.2 -3.5 5.7
Inflation (yearly average, %) 2.4 1.8 1.3 2.8
Budget balance (% GDP)* -3.8 -4.6 -14.9 -13.8
Current account balance (% GDP) -2.2 -2.2 -3.1 -3.3
Public debt (% GDP) 106.6 108.2 132.4 137.8

(e): Estimate (f): Forecast *Fiscal year from October 1 to September 30. 2021 Data: FY 2020/21

STRENGTHS

  • Flexible labour market
  • Full employment is one of the Federal Reserve’s objectives
  • The dollar’s predominant role in the global economy
  • 70% of public debt held by residents
  • Highly attractive: leader in research & innovation, huge market
  • Favourable corporate taxation

WEAKNESSES

  • Low labour market participation
  • Households not geographically flexible
  • High household debt (129% of gross disposable income)
  • Polarised political landscape
  • Decrease in fertility rate
  • Outdated infrastructure
  • Growing inequalities

RISK ASSESSMENT

Supportive economic policy and rapid vaccine deployment support a strong recovery

Precipitated into its first recession by the impact of the COVID-19 pandemic, the economy is expected to rebound briskly in 2021. Constrained in 2020 by restrictions to contain the spread of the coronavirus, household consumption (more than two-thirds of GDP) will be the main driver of the recovery, thanks to the rapid deployment of the COVID-19 vaccine. Households will benefit from the excess savings pool accumulated during the pandemic (estimated at over USD 1.6 trillion), built up through fiscal support measures. In particular, the measures in the December 2020 (Consolidated Appropriations Act) and March 2021 (American Rescue Plan Act) fiscal support packages have boosted income and consumer confidence. Investment is also expected to be buoyant: low mortgage rates and low housing supply amid demand driven by new work trends will continue to encourage residential investment. Growing optimism about the recovery will drive the rebound in business investment. By the end of the year, business investment could also benefit from the eventual passage of a USD 2 trillion-plus infrastructure plan by President Biden's administration, but the parallel proposed increase in coporate taxes to finance it could dampen confidence. The strong recovery is also expected to stimulate strong import demand, which will weigh on the contribution of foreign trade to growth. A rare positive contribution to growth in 2020, government consumption should remain buoyant thanks to the aforementioned federal fiscal stimulus.

After a small increase in 2020, inflation is expected to be above the Federal Reserve's (Fed) 2% target this year, fueled by the rebound in demand and persistent supply issues leading to higher input prices. Nevertheless, deeming the increase "transitory," the central bank is expected to keep its key interest rate near zero this year, waiting for further progress in the labor market recovery before acting. Court closures, support measures and payment deferrals have contributed to a surprising 5% drop in business bankruptcies, but these could accelerate by the end of 2021. SMEs in the retail, apparel, entertainment, energy, airline, hotel and restaurant sectors appear particularly vulnerable.

 

Record public debt after an unprecedented fiscal response

In 2020, the public deficit reached a record level because of the exceptional measures taken to respond to the impact of the COVID-19 pandemic. In 2021, it is expected to decline slightly, mainly due to a recovery in tax revenues. However, it will remain very high due to the impact of the aid voted in 2020 and 2021 in response to the crisis, which is equivalent to 27% of GDP. Funds for guaranteed loans for SMEs, "enhanced" unemployment benefits, and two cheques sent directly to households, and aid to state and local governments will be among the largest spending items in the 2021 federal budget. Despite the surge in public debt, the country enjoys unparalleled financing flexibility, thanks to its status as the issuer of the USD, the world's main reserve currency. State and local government revenues have also suffered from the crisis, but the pressure on their finances has been mitigated by federal budget support and a dedicated Fed loan facility, which expired at the end of 2020.

 

In 2021, the current account deficit is expected to improve slightly. It will continue to be driven mainly by the large balance of goods deficit (4.3% of GDP), which is expected to widen under the impetus of rising imports. The surplus in the services account, which has been strongly affected by the crisis, is projected to increase. The positive primary income balance, which also declined in 2020, is expected to rebound thanks to profit repatriations from multinational companies. Remaining relatively stable in 2020, the remittances deficit is expected to change little. Flows into the financial account will finance the deficit. Nevertheless, the net international investment position, which has been in deficit for three decades (more than 60% of GDP in 2020), is expected to continue to widen.

 

Joe Biden, President of a divided America

Following the elections of 3 November 2020, Democratic candidate Joe Biden, Vice President from 2009 to 2017, was elected 46th President of the United States at the expense of the outgoing President, the Republican Donald Trump. At the end of a campaign disrupted by the COVID-19 pandemic, the elections were notably characterised by the highest turnout in 120 years (66.7%) and a jump in absentee voting. The transition period before the swearing-in of the president on 20 January 2021 has proved unusually turbulent, culminating with the storming of Capitol Hill by Donald Trump supporters on January 6. his role in these events, Trump has been the subject of a second unsuccessful impeachment proceeding. Promising to work to reconcile America, President Biden made managing the health crisis, deploying vaccines, and economic recovery a priority. He will be able to rely on a Democratic majority in the House of Representatives (222 of 435 seats) and the Senate (50 of 100 seats).  The narrow Senate majority will, however, limit Biden's ability to carry out his program. After having succeeded in passing the American Rescue Plan Act, a USD 1.9 trillion relief package, the legislative agenda will be dominated by debates on social investment (education, childcare, help for the unemployed) and infrastructure plans, which amount to more than USD 4 trillion. Proposing to finance his plans by raising taxes on businesses and high-income households, President Biden will probably face uphill battle to convince his own party and the Republicans.  In terms of foreign policy, he is expected to break with his predecessor's "America First" strategy, committing to a multilateral approach and re-engaging with traditional partners (Europe, North America). However, some tensions, such as the taxation of technological giants or the dispute over subsidies to aircraft manufacturers, will remain. Above all, the first few months of the new administration have confirmed that tensions with China remain high, particularly with regard to the tariffs applied by its predecessor.

 

Last updated: May 2021

Payment

Exporters should pay close attention to sales contract clauses on the respective obligations of the parties and determine payment terms best suited to the context, particularly where credit payment obligations are involved. In this regard, cheques and bills of exchange are very basic payment devices that do not allow creditors to bring actions for recovery in respect of “exchange law” (droit cambiaire) as is possible in other signatory countries of the 1930 and 1931 Geneva Conventions on uniform legal treatment of bills of exchange and cheques.

Cheques are widely used but, as they are not required to be covered at their issue, offer relatively limited guarantees. Account holders may stop payment on a cheque by submitting a written request to the bank within 14 days of the cheque’s issue. Moreover, in the event of default, payees must still provide proof of claim. Certified checks offer greater security to suppliers, as the bank certifying the cheque thereby confirms the presence of sufficient funds in the account and makes a commitment to pay it. Although more difficult to obtain and therefore less commonplace, cashier’s checks – cheques drawn directly on a bank’s own account – provide complete security as they constitute a direct undertaking to pay from the bank.

Bills of exchange and promissory notes are less commonly used and offer no specific proof of debt. The open account system is only justified after a continuing business relationship has been established.

Transfers are used frequently – especially via the SWIFT electronic network, to which most American banks are connected, and which provides speedy and low-cost processing of international payments. SWIFT transfers are particularly suitable where real trust exists between the contracting parties, since the seller is dependent on the buyer acting in good faith and effectively initiating the transfer order.

For large amounts, major American companies also use two other highly automated interbank transfer systems – the Clearing House Interbank Payments System (CHIPS), operated by private financial institutions, and the Fedwire Funds Service System, operated by the Federal Reserve.

Debt collection

Amicable phase

Since the American legal system is complex and costly (especially regarding lawyers’ fees), it is advisable to negotiate and settle out of court with customers wherever possible, or otherwise hire a collection agency.

 

Legal proceedings

The judicial system comprises two basic types of court: the federal District Courts with at least one such court in each state and the Circuit or County Courts under the jurisdiction of each state.

 

Fast-track proceedings

If the debt is certain and undisputed, US law provides for a “summary judgment” procedure, where a motion for summary judgment is based upon a claim by one party that all necessary factual issues are settled or that no trial is necessary. This is appropriate when the court determines there are no factual issues remaining to be tried, and therefore a cause of action or all causes of action in the complaint can be decided without a trial. If the judge decides that there are facts in dispute, the court will deny the motion for summary judgment and order a trial.

 

Ordinary proceedings

The vast majority of proceedings are heard by state courts, which apply state and federal law to disputes falling within their jurisdictions (i.e. legal actions concerning persons domiciled or resident in the state).

Federal courts, on the other hand, rule on disputes involving state governments, cases involving interpretations of the constitution or federal treaties, and claims above USD 75,000 between citizens of different American states or between an American citizen and a foreign national or foreign state body or, in some cases, between plaintiffs and defendants from foreign countries.

A key feature of the American judicial system is the pre-trial “discovery” phase, whereby each party may demand evidence and testimonies relating to the dispute from the adversary before the court hears the case. During the trial itself, judges give plaintiffs and their lawyers a considerable leeway to produce pertinent documents at any time and conduct the trial in general. This is an adversarial procedure, where the judge has more the role of an arbitrator, ensuring compliance with the procedural rules, although more and more practices enhances the role of the judge in the running of the case. The discovery phase can last several months, even years. It can entail high costs due to each adversary’s insistence on constantly providing pertinent evidence (argued by each party), and involve various means – such as investigations, requests for supporting documents, witness testimony, and detective reports – which are then submitted for court approval during the final phase of the proceedings.

In civil cases, the jury determines whether the demand is justified and also determines the penalty to impose on the offender. For especially complex, lengthy, or expensive litigations, such as insolvency cases, courts have been known to allow creditors to hold as liable the professionals (e.g. auditors) who have counselled the defaulting party, where such advisors have demonstrably acted improperly.

Enforcement of a Legal Decision

Domestic judgments in the United States give the creditors additional rights, such as the seizure and selling of the debtor’s assets or the garnishment of their bank account. As a federal state, decisions rendered in one of the country’s states may be executed in another state’s court, provided that the enforcing court considers that it is competent to enforce any judgement.

For foreign awards, each state has its own legislation. Nevertheless, they must be first recognised as domestic judgments. If a reciprocal recognition treaty exists, the requirement is fulfilled. However, in the absence of one, exequatur proceedings aim at ensuring enforcement in domestic court, after verifying the judgment meets certain criteria provided by the state law.

Insolvency Proceedings

Out-of court proceedings

Different state laws can propose out-of court proceedings in order to avoid any formal judicial proceedings, such as the Assignment for the benefit of creditors in the state of California, where a company turns over all of its assets to an independent third party, who liquidates and distributes them to all creditors in an equitable fashion.

 

Restructuring proceedings

Chapter 11 of the American Bankruptcy Code provides a distressed entity with the opportunity to preserve its business as a going concern while implementing an operation of financial restructuring. The debtor can seek to adjust its debt by reduction the amount owed or extending repayment terms. The debtor entity and its management continue to operate the business as the debtor-in-possession. The Bankruptcy Court supervises the proceedings.

 

Liquidation

According to Chapter 7 of the American Bankruptcy Code, the purpose of these proceedings is to implement an orderly liquidation of the distressed entity. The court-supervised process involves a trustee selling assets and distributing the proceeds to creditors in accordance with the statutory priorities provided in the Bankruptcy Code as well as pursuing available causes of action. The US Trustee appoints an independent interim trustee to administer the case. The interim trustee holds a meeting of creditors after the petition is filed. He is responsible for liquidating the estate’s assets and distributing the proceeds to the creditors. The court supervises the proceedings. State law can also provide different mechanism for liquidation of a debtor’s assets such as receivership.

Insolvency trend United States of America
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