United States: Risk Assessment
Country Risk Rating
|A2||The political and economic situation is good. A basically stable and efficient business environment nonetheless leaves room for improvement. Corporate default probability is low on average.|
Business Climate Rating
|A1||The business environment is very good. Corporate financial information is available and reliable. Debt collection is efficient. Institutional quality is very good. Intercompany transactions run smoothly in environments rated A1.|
Household consumption is boosting activity but there are signs of weakness
In 2015, growth remained sustained despite a first quarter marked by a very rigorous winter and major strikes by dock workers on the west coast. In 2016, growth is expected to significantly decrease owing to poor performances on the first half of the year, and be below its potential of 2%.
Private consumption (around 70% of GDP) will be again backed by the decline in unemployment which would drop to below 5% and the increase in employment, suggesting a rise in the employment rate (62.8%) in 2016, which remains lower than its pre-financial crisis level (66% on average between 2003 and 2007). Improving employment fosters wages increases. Since the raise of its key interest rate in December 2015 (the first in 7 years), the US central bank (Fed) has kept a wait and see approach given the context of low inflation, strong dollar and weak global economic growth. The low cost of credit encourages the rebound of activity and prices on the new and old housing market, and thus, mortgage equity withdrawal. However, some indicators have recently worsened. Hence, after reaching historically high levels in 2015, car sales are heading downwards since the beginning of 2016, revealing that the catching-up process is coming to an end. Furthermore, the increase in subprime car loans, as well as the rise in student loans must be monitored. Finally, if housing prices and new home sales continue to grow, sales in existing homes, construction permits and starts seem to peak. For corporations on the other hand, the situation is less favorable. While their immaterial expenses increase, their investments in structures decline. This situation reveals, simultaneously, the stagnation of the production capacity utilization rate (75% in July 2016), the decrease in new orders in the industry, and the erosion of profits triggered by the increase in labor cost not compensated by the weak productivity gains of an aging productive system. In this context company insolvencies should increase in 2016. Historically, they increase when GDP growth comes close to 2%. If manufacturers suffer from dollar appreciation, the most at risk are the energy and mining sectors battered by low commodities prices. Even if shale oil producers have concentrated on the wells providing the highest returns, resulting in the closing of more than 60% of the wells in 2015, unconventional oil production is likely to continue to decrease in 2016. Conversely, the sectors showing lower risks are automotive, textile, clothing and transport due to the good performance of domestic consumption.
The dollar likely to remain strong at the expense of manufacturing exports
While the European Central Bank seems to be determined to maintain or heighten its accommodating monetary policy, the Fed seems, on the contrary to orient its own towards a tightening. In this regard the dollar is expected to further appreciate against the single currency in 2016. Its high level has increased the cost of US products amid a muted rebound in the European and Japanese partner economies, and the slowdown of the Chinese growth. This context will weigh on export growth and will encourage import growth, backed by the dynamism of consumption. However, the rise of the non-energy deficit could be offset by the near-disappearance of the energy deficit, allowing a stabilization of the current account deficit.
The public debt remains very high while the elections are coming
In view of November 2016 elections the fiscal deficit will remain high in the 2017 fiscal year. The public debt keeps an alarming trajectory since it represents 103.8% of GDP at the end of 2015, and will continue to grow in 2016. Following the primaries, Donald Trump and Hillary Clinton will respectively represent the Republican and Democratic Parties at the presidential. The former has stated that he wants to cut taxes, increase tariff protection, combat immigration, review international alliances and is against Trans Pacific Partnership agreement (TPP). The latter declared to be in favor of an increase in infrastructure expenditure, minimum wage, financial support for students, an extension of parental leave, all this being financed by a rise in high income taxation, but she is against TPP as well. Both candidates gather many negative opinions, but Trump more than Clinton, which seems to give an advantage to the latter. Nevertheless, proposals by either one of them are unlikely to be adopted, as it stands, by the new Congress. Hillary Clinton could face a House of Representatives still dominated by Republicans, and Donald Trump the hostility of a part of the Republican Party. Uncertainty could weigh on the country’s activity.