Economic Analysis
United States of America

United States of America

Population 327.4 million
GDP per capita 62,869 US$
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 2.2 2.9 2.3 1.3
Inflation (yearly average, %) 2.1 2.4 1.8 2.1
Budget balance * (% GDP) -4.5 -5.7 -5.6 -6.0
Current account balance (% GDP) -2.3 -2.4 -2.5 -2.5
Public debt (% GDP) 106.0 104.3 106.2 108.9

(e): Estimate. (f): Forecast. *Fiscal year from October to September.

STRENGTHS

  • Flexible labour market
  • Full employment is one of the Federal Reserve’s objectives
  • Dollar’s predominant role in the global economy
  • 70% of public debt held by residents
  • Highly attractive: leader in research & innovation; huge market
  • Favourable company taxation
  • Increasing energy autonomy

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  • Outdated infrastructure
  • Increasing inequalities

RISK ASSESSMENT

Growth hampered by business difficulties

Growth will slow sharply in 2020 due to the downturn in business investment which, after being boosted in 2018 and early 2019 by President Donald Trump’s tax reforms (corporate tax cut from 35% to 21%), began to decline in mid-2019 amid trade tensions, aggravated by the unpredictability of political decisions. In addition, US companies have been forced to trim their import margins, to avoid passing on the entire increase in input costs resulting from customs duties imposed on most Chinese imports and a multitude of products (including steel and aluminium), but also their export margins, to remain competitive despite retaliation measures by trading partners. In this challenging context for companies, the Federal Reserve, which was forced to lower its key interest rate three times by the end of 2019, is expected to pursue its easing policy in 2020. Improved financing conditions will make it possible to support household consumption, which will in turn boost growth thanks to a persistently low unemployment rate (3.6% in October 2019) and correspondingly brisk growth in real wages. Conversely, in the absence of any major new measures, public spending will contribute only marginally to growth in 2020, after expanding strongly for two years. In addition, the trade environment will remain weak, featuring muted growth among key partners and retaliatory protectionist measures by those same partners, and exports will grow slowly after a flat performance in 2019. Although also affected by protectionist measures, imports are expected to remain brisker, in line with household consumption. Foreign trade will therefore continue to weigh on growth.

The segments most exposed to trade tensions will continue to be manufacturing industry, which is facing both falling export orders and rising input costs, and agribusiness, which is the main target of Chinese trade retaliation measures. The economic situation is also difficult for the energy sector, which is heavily indebted due to investment requirements and facing weak profitability because of the dip in oil prices. Conversely, activity will remain solid in construction, thanks to low interest rates.

 

Ever-present deficits in public and external accounts

In the absence of any major fiscal measures, the public deficit will remain very high in 2020. Once again, the main increases in spending will be concentrated in the military budget (+USD 23 billion, or 0.1% of GDP). At the same time, with revenues slackening in a context of slowing activity, the deficit may even widen. Public debt, which is among the highest in the world, will therefore continue its upward trajectory. In this regard, the government and Congress reached an agreement in July 2019 to raise the ceiling on public spending and debt, thus avoiding the prospect of a federal shutdown similar to the one in January 2019.

The current account will continue to show a large deficit in 2020. Substantial imports of consumer and capital goods engender a structural deficit in the goods balance (4.2% of GDP in 2018). Surpluses in the balance of services (1.2% of GDP) – thanks to tourism, research and development and financial services – and in income (0.6% of GDP), attributable to dividends from US investments abroad, are clearly insufficient to offset the goods balance. The resulting current account deficit will be mainly financed by FDI and portfolio investment. The net external asset position has been in deficit for three decades (49.5% of GDP at the end of June 2019). This deficit will continue to widen.

 

Uncertainty over the presidential election in a polarised landscape

In the lead-up to the presidential election in November 2020, the political landscape looks more polarised than ever. Democrats, who took over the House of Representatives (235 seats out of 435) in the 2018 mid-term elections, launched impeachment proceedings in September 2019 against President Trump, who is suspected of pressuring Ukraine to investigate Joe Biden, one of the Democratic presidential candidates in 2020. Although impeachment has very little chance of success, since it requires a two-thirds vote in the Senate, where the Republicans still have a majority (53 seats out of 100), it illustrates the divide between two sets of voters: in November 2019, only 11% of Republicans wanted President Trump impeached, compared to 81% of Democrats. The outcome of the Democratic primaries is highly uncertain. While polls conducted a year before the elections suggest that each one of the main Democratic candidates would beat President Trump, the situation could change radically in what may be a tumultuous election campaign.

Internationally, US trade and foreign policy will remain unpredictable. Despite the announcement of a partial trade agreement in December 2019, trade tensions with China are expected to continue, with most tariffs being maintained (19% on average in January 2020 versus 3% at the beginning of 2018). The United States may also open a new front in the trade war by taxing European car imports, after twice postponing its decision on this matter.

 

Last update : February 2020

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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